LONDON, March 23 (Reuters) - British exporters, who have been boosted by sterling’s fall but are still able to trade as before the Brexit vote, are in a “sweet spot” that is unlikely to last indefinitely, a top Bank of England official said on Thursday.
Deputy Governor Ben Broadbent said the fall in sterling - down around 16 percent against the dollar since June’s vote to leave the European Union - ought to provide a powerful incentive to invest among companies that trade internationally.
But businesses are “probably” already tempering their decisions to invest because of uncertainty about Britain’s trading prospects after it leaves the European Union, Broadbent said.
He described the current situation for the economy - which has held up to last year’s Brexit vote better than the BoE expected - as “post-referendum” but “pre-Brexit”.
“The result is something of a sweet spot for exporters,” Broadbent said in a speech at Imperial College in London.
However, sterling’s weakness most likely reflected the foreign exchange market’s belief that when Brexit actually takes place, leaving the EU will raise costs for companies that trade internationally - whether through tariffs, non-tariff barriers or lower productivity, he said.
“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,” Broadbent said.
“Either the currency market is right about the consequences of Brexit, in which case the UK’s trading relationships will become less favourable; or it’s wrong, in which case sterling is likely to recover.”
Broadbent added that the impact of the squeeze on households’ real income since sterling’s fall may be starting to appear in the form of weak retail spending. (Reporting by Andy Bruce, editing by Larry King)