LONDON—British companies are likely to cancel projects that they have put on hold because of Brexit uncertainty if the country leaves the European Union without a deal to smooth the shock, Bank of England Deputy Governor Ben Broadbent said on May 20.
Business investment fell throughout 2018 as companies waited for clarity on the terms of Brexit and grew only slightly early this year, a situation Broadbent described as “remarkable” given the economy was still growing and company profits were high.
With just days to go before Britain was due to leave on March 29, Prime Minister Theresa May asked the EU for more time to negotiate a deal. Brexit has now been delayed until Oct. 31 unless there is an early agreement.
Some Brexit supporters have said Britain should leave the EU now with no agreement, as businesses would at least know they would have to revert to trade on World Trade Organization terms.
But Broadbent said surveys showed companies viewed this scenario as the most negative of all.
“It would be wrong to conclude … that the best thing for investment is to resolve this uncertainty as soon as you can, by any means necessary,” Broadbent said in a speech to Imperial College Business School in London.
“Deliberately choosing the outcome firms say they view most negatively is more likely to mean that capital projects that have so far been deferred are then simply canceled,” he said.
Broadbent said the impact of uncertainty on business investment appeared to rise as the Brexit deadline neared—making it important to avoid giving businesses further false hope of an immediate resolution to Brexit uncertainties.
“A repeated series of cliff-edges, each of which is expected to be decisive but in reality just gives way to the next cliff, is more damaging for investment than if it had been clear at the outset that the process will take time.”
Earlier this month BoE Governor Mark Carney said business investment was likely to continue to be weak, but that there should be an improvement—and reduced reliance on consumers—if Brexit took place smoothly.
By David Milliken