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U.K. Firms to Take Years to Recover From Brexit, Watchdog Says

U.K. Firms to Take Years to Recover From Brexit, Watchdog Says

(Bloomberg) -- Dwindling business investment in the U.K. will take several years to recover, even if Parliament agrees a Brexit deal soon, according to the former deputy governor of the Bank of England.

Striking a deal with the European Union won’t resolve uncertainty for firms because the ultimate trading relationship and migration rules between Britain and the trading bloc would still be unclear, Charlie Bean, who now helps run the Office for Budget Responsibility, said Tuesday.

“The likelihood, to be honest, of resolving that uncertainty is close to negligible,” he told members of parliament on the Treasury Committee in London. For business investment,“a more plausible story is that it comes back over several years.”

U.K. Firms to Take Years to Recover From Brexit, Watchdog Says

A lack of clarity around the form of Britain’s divorce from the EU is weighing on businesses more than expected, with investment falling throughout last year, the Treasury’s fiscal watchdog has said.

Prime Minister Theresa May has so far failed to get her Brexit agreement through parliament, recording the largest defeat for a sitting government in history in January and another resounding loss last week. With just 10 days until Britain’s scheduled departure on 29 March, her government has been plunged into crisis after House of Commons Speaker John Bercow said Monday she couldn’t bring the same deal back for another vote because it breaks an ancient parliamentary convention.

Bean’s comments echo those of current BOE policy maker Jonathan Haskel, who last week also warned the U.K. may not see a material pickup in investment even if the government secures an exit deal this month.

The OBR says that, in the case of an orderly Brexit, it expects a modest uptick in businesses spending as a share of real gross domestic product in the coming years. However the increase would be less than typical, given the amount of spare capacity in the economy.

“Deep-seated uncertainty” about Brexit would also render government policies designed to lift investment -- such as changes to the corporation tax rate -- as less effective, OBR Chairman Robert Chote, said at the same hearing.

If “they don’t know what labor they’re going to be able to get access to, making investment cheaper at the margin through tax measures is not necessarily going to be as powerful an instrument as it otherwise would be,” Chote told the committee.

To contact the reporter on this story: Jessica Shankleman in London at jshankleman@bloomberg.net

To contact the editors responsible for this story: Tim Ross at tross54@bloomberg.net, Lucy Meakin, David Goodman

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