Advertisement

  1. ITV Report

Mark Carney: Brexit uncertainty still holding businesses back from UK investment

Mark Carney said the UK economy was still being hampered by Brexit. Credit: Peston on Sunday

Uncertainty over Brexit is still holding back UK growth whilst the world economy continues to boom, according to Mark Carney.

The Bank of England governor said that businesses were holding back from investing in Britain while they await the outcome of Brexit negotiations.

He revealed that the bank's forecast for investment in the UK was 20% lower than the prediction in May 2016 - a month before the referendum.

Speaking to Peston on Sunday, Mr Carney said he was confident financial uncertainty would clear up "in the relatively near future".

The Canadian also revealed the Bank hoped the Government would conclude a transitional deal with the European Union, with a final agreement resembling "something between" membership of the Single Market and the World Trade Organisation.

Are investors holding back because of Brexit? Credit: PA

"Since the referendum, what we have seen is that business investment has picked up, but it hasn't picked up to the extent one would have expected given how strong the world is, how easy financial conditions are, how high profitability is and how little capacity they have," Mr Carney said.

"It should really be booming, and it's just growing."

He continued: "I think we know why the reason why that is the case it's because they're waiting to see the nature of the deal with the European Union."

The governor said Brexit was "reinforcing" some of the effects of the 2008 financial crash, but predicted a more optimistic future.

"We actually think profitability is going to pick up over the next couple of years, but not by the same degree as the past, and it's that Brexit affect which is weighing on it," he said.

"This uncertainty is going to be resolved in the relatively near future.

"UK businesses are in very good shape, their balance sheets are in good shape, the financial system is in excellent shape.

"People are in work and the opportunity is going to be to, once that uncertainty dissipates, is to put that money to work."

Interest rates were increased to 0.5% earlier this week. Credit: PA

Mr Carney's comments came after the Bank raised interest rates by 0.25% earlier this week - bringing them to 0.5%

He said that the decision to hike rates had been to slow down growth in the UK economy, which was growing "faster than its speed limit".

But growth, which was 2.5% before the 2008 crash, still remains low at 1.5%.

And despite record low levels of unemployment, productivity has not increased.

"People are in work, but their real wages are not going up. It's not because they can't find work, but it's because that work is not becoming more productive," he said.

Mr Carney continued: "The crash caused a lot of problems for about five years.

"Then we went through a period where the economy is healing, people were finding work.

"But businesses weren't investing like they used to - in part because there was a lot of uncertainty."