Britain’s large current account deficit is less vulnerable to a sudden stop in investors funding it than its headline size suggests but still carries risks, Bank of England policymaker Kristin Forbes said on Monday.
In a speech to the OMFIF finance industry group in London, Forbes said that Britain’s cross-border investments — which have dragged on the deficit in recent years — would offer some respite against a jump in uncertainty that could occur in the run-up to the European Union referendum on June 23.
But the relief would only be partial, she said.
“The estimated magnitude of this potential risk sharing through international exposures is moderate and would be unlikely to fully counteract the many negative effects from increased uncertainty on the broader UK economy. This is especially true over longer periods of time,” Forbes said.
Forbes did not directly address the outlook for British monetary policy. But she did say that the inflation impact of any fall in sterling would be less significant if it is driven by temporary uncertainty, rather than longer-term concerns about the supply capacity of the British or global economy.