Ben Broadbent: Brexit and the pound

Speech by Mr Ben Broadbent, Deputy Governor for Monetary Policy of the Bank of England, at the Imperial College, London, 23 March 2017.

The views expressed in this speech are those of the speaker and not the view of the BIS.

I'd like to thank Matt Corder, Chris Salmon, Michael Saunders, Greg Thwaites and Anthony Veal, along with other colleagues, for their helpful comments and assistance.  I reserve particular thanks for my Economic Advisor Alina Barnett.

Introduction and summary

The vote to leave the EU led to a big drop in sterling's exchange rate. One consequence is a rise in import prices and a squeeze on households' real income. We may already be seeing the impact of that squeeze on retail spending, which in real terms fell quite sharply around the turn of the year.  

While it's hit the income of households, however, the depreciation has come as a boon for many exporters. In sterling terms goods export prices rose 12% through the course of last year. This will significantly have boosted exporters' profitability and with it the incentive to invest in extra capacity.