Pound value crash will protect UK economy from Brexit shock, says Bank of England deputy governor

Weakened currency is an important ‘shock absorber’, Ben Broadbent says. It has already pushed up import costs and will feed through to shop prices over the next few months

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Bank of England deputy governor Ben Broadbent said the pound’s slump since the Brexit vote is a “major shock absorber” that will help to limit damage to the economy.

Sterling has lost almost a fifth of its value against the dollar since the referendum in June and is the worst performing currency in the world this year. It has continued to face pressure since a so-called flash crash two weeks ago saw it take a 6 per cent hit in two minutes .

Asked if the Bank would intervene if the pound weakened further, Broadbent told BBC radio: “Having a flexible currency is an extremely important thing, especially in an environment when your economy is facing a shock that’s different from your trading partners. 

“In the shape of the referendum, we’ve had exactly one of those shocks. Allowing the currency to react to that is a very important shock absorber.”

The weaker pound has already pushed up some import costs and will feed through to consumer prices over the coming months as the hedging contracts that suppliers use to protect themselves against currency movements expire. Last week, consumer goods giant Unilever battled with Tesco after hiking its prices 10 per cent due to the pound’s fall. 

Data to be released on Tuesday is expected to show inflation increased to 0.9 per cent in September, below the Bank’s 2 per cent target but still the highest level since 2014.

Broadbent said it was “likely” inflation would rise “somewhat” above target over the next few years. The Bank’s official forecast is for a level of 2.4 per cent by 2018. Fellow policy maker 

“In all likelihood [inflation] will rise above the two per cent target we have”, Broadbent said.

“If we had wanted to ensure that we set policy – the level of interest rates – in such a way as to ensure there was no chance of it rising above target, then we would have had to have set tighter policy.

“That would have meant lower economic growth and that would have increased the chances of unemployment going up.”