EU Uncertainty Hasn't Hurt U.K. Investment, Says BOE's Mark Carney

By Paul Hannon 

        LONDON--Uncertainty about whether the U.K. will remain in the European Union hasn't deterred British businesses from investing, although clarity on the issue would be a positive development for the economy, Bank of England Governor Mark Carney said Thursday.
        U.K. Prime Minister David Cameron has pledged to negotiate a "better deal" for Britain and then hold a referendum by the end of 2017 on whether to stay in the 28-nation bloc or pull out. The prime minister, whose Conservative Party swept to victory in U.K. elections last week, has repeatedly said he wants the U.K. to remain in a reformed EU.
        The Bank of England on Wednesday lowered its growth forecasts for the economy this year and next, citing continued slow progress in increasing productivity, or the output for each hour worked. Low levels of investment during the years since the financial crisis is one reason for that disappointing performance.
        But in an interview with the British Broadcasting Corp., Mr. Carney said the risk of a U.K. departure from the EU hasn't been a factor in weak investment.
        "We talk to a lot of bosses," he said. "There has been an awareness of political uncertainty. They have not acted on that uncertainty. In other words, they are continuing to invest, they are continuing to hire."
        Nevertheless, Mr. Carney said it would be a boost to the economy if a decision on the U.K.'s future relationship with the EU could be reached, although he declined to comment on how rapidly the government should move on the issue, saying only that it should do so "with all deliberate speed."
        "It's in the interest of everybody that there is clarity," he said.
        Mr. Carney also rejected the argument that weak productivity growth is caused by high levels of immigration, with newly arrived workers prepared to work for less than the existing workforce, and therefore making it less advantageous for businesses to spend heavily on new equipment that would help raise each worker's output.
        "When they first come in they tend to work in lower skilled jobs," he said. "Over time they move up the skill chain, they move into jobs that are more suited to the skills they have. They contribute to an increase in productivity."
        He told the BBC that the increase in the number of British people willing to work had been much greater than the number of immigrants arriving in recent years.
        "There has been a huge growth in employment and we have seen a big increase in the willingness of British people to work," he said.
        But he said that reserve of unused workers had largely been used up, and the BOE therefore expects productivity to begin to rise in coming years.
        "What's happened with the economy is that jobs have been created," he said. "Now that spare capacity is being used up. And now for the economy to move forward, it's going to be a story of productivity."
        Write to Paul Hannon at paul.hannon@wsj.com
        (END) Dow Jones Newswires

        May 14, 2015 04:26 ET (08:26 GMT)

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