Pre-Brexit export '˜sweet spot' brief warns BoE boss

Deputy governor Ben Broadbent said sterling’s plunge since last June’s leave vote may have fuelled inflation, but was providing a “boon” for many exporters.

In a speech at Imperial College in London, he said exporter profits were boosted after the price of goods rose by 12% in sterling terms last year, while they are also still able to trade as before the Brexit vote.

He described the UK as being in a “post-referendum” but “pre-Brexit” era, where the “costs and ease of exporting are unchanged but the returns to it significantly higher”.

“The result is something of a sweet spot for exporters,” he said.

But Mr Broadbent warned this would not last.

He said that either Brexit will lead to higher trading costs for exporters, as expected by financial markets, or the outcome will not be as bad as feared, which will push sterling higher.

He said: “Either the currency market is too pessimistic, in which case sterling’s depreciation is likely to be reversed over time. Or it’s not, in which case the costs of exporting will eventually go up.

“Barring some other source of exchange rate weakness, such as a sharp rise in the household saving rate (which would have its own implications for the economy), the sweet spot is unlikely to last indefinitely.”

Businesses were already showing signs of holding back investment due to uncertainty over Brexit negotiations and may cut back further over the year ahead, he added, confirming that the Bank’s interest rate-setting Monetary Policy Committee (MPC) has “no particular expectation about the forthcoming negotiations”.