Mark Carney expects UK economic growth to pick up next year as Brexit investment uncertainty lessens

'I would expect that in 2019 we will see a pick-up in this economy all things being equal – strong global growth, greater uncertainty,' he said

The Governor of the Bank of England, Mark Carney, expects UK economic growth to pick up next year, as investment-crushing uncertainty about Brexit is lifted.

Speaking to the House of Lords’ Economic Affairs Committee on Tuesday, Mr Carney denied the charge of some members that the Bank is “biased” on the subject of Brexit and he hinted that the Bank is actually preparing to upgrade its forecasts at its Inflation Report next month.

“I would expect that in 2019 we will see a pick-up in this economy all things being equal – strong global growth, greater uncertainty,” he said.

“My impression of UK business is that they’re looking for certainty. And given the state of their balance sheets, once they [get] greater certainty, they will look to put that money to work. There should be a pick-up in investment in 2019.”

“A disorderly Brexit, not a likely scenario at all, [is] less likely than at the time we did the assessment in the fall.”

But Mr Carney, who is due to leave the Bank in June 2019, repeated his view that the 2016 Brexit vote had, so far, effectively knocked 1 per cent of GDP off the UK, relative to where it would otherwise have been, through weaker corporate investment and damage to household consumption due to higher inflation.

In August 2016 the Bank of England forecast that business investment in 2017 would fall 2 per cent. But in the most recent data for the third quarter of 2017 it was growing at an annual rate of 1.7 per cent.

Mr Carney denied this showed the Bank’s forecasts were distorted by bias.

“Business investment is not up any way to the degree that the world economy growing at over 4 percent with the easiest financial conditions, most supportive financial conditions in over a decade, with the strongest balance sheets in probably 25 years and huge opportunities in an environment of greater certainty,” he said.

According to the Office for National Statistics, the UK economy expanded by 1.8 per cent in 2017, the weakest calendar year of growth since 2012, although growth in the final quarter was slightly higher than expected at 0.5 per cent.

In its November Inflation Report the Bank had projected growth in 1.6 per cent in both 2017 and 2018, rising to 1.7 per cent in 2019.

The Bank’s next round of forecasts is due on 8 February.

Mr Carney was asked about the well-known statistical deficiencies of the Retail Prices Index measure of inflation and whether the Government should stop using it for the issuance of inflation-linked Gilts and for setting of student loans repayment rates.

“It would be better not to further embed RPI,” said Mr Carney, although he stopped short of recommending it be dropped.

“We’re still issuing on RPI, and yes, there is a short-term argument that of course it’s better to continue issuing on RPI, because of the liquidity and the benchmark ... I understand all those points....But we wouldn’t want to be in the same position 10 years from now ... In the end, you have to pick a date, and it tends to be, 7, 8, 10 years down the road, at which you will have transitioned off.”