LONDON (Reuters) - Bank of England Deputy Governor Ben Broadbent said on Monday he thought that Britain leaving the European Union next year under a transition agreement was still the most likely outcome from the negotiations.
In an interview with U.S. financial broadcaster CNBC, Broadbent said he saw signs of slower economic growth in the fourth quarter, adding that the effect of Brexit uncertainty on business investment had intensified this year.
Doubts about Prime Minister Theresa May’s ability to get a Brexit divorce deal backed by both the European Union and her own lawmakers have grown over the last few days, sending the pound sliding to a 1-1/2 week low against the dollar on Monday.
Asked about a Reuters poll of economists published on Friday that showed a 1-in-4 chance of a no-deal Brexit, Broadbent stuck with the BoE’s base case that there would be a “smooth” Brexit.
“Our forecasts are conditioned on an assumption that there will be a deal, and in particular a transition period agreed... I still think it’s the most likely outcome,” Broadbent said in an interview with CNBC.
“But obviously, over time, every day there are headlines, positive, negative, which will send the currency in particular in one direction or the other.”
Broadbent also said the BoE had seen signs of pay pressure strengthening.
“We’ve certainly seen stronger figures, not just in the official data but in many of the pay surveys, than we’ve seen for many years,” he said.
“I, certainly the (Monetary Policy Committee)... always believed that the same old rules applied — that as the labor market tightened you would begin to see faster wage growth, and that’s indeed what we’ve seen.”
Whether that will continue depends on whether the economy continues to grow enough so that the labor market keeps tightening, Broadbent said.
Economists polled by Reuters expect that total average weekly earnings growth data due on Tuesday is likely to show an increase.
The BoE’s guidance for “limited and gradual” rate increases does not necessarily equate to one hike a year, Broadbent said, adding that the main message for households and businesses was simply that rates are unlikely to rise sharply.
After the last BoE rate rise in August, Governor Mark Carney said market expectations of one rate rise a year were a reasonable rule of thumb for households and businesses.
Reporting by Andy Bruce and Alistair Smout; Editing by Gareth Jones