The fall in sterling since the Brexit vote has given a short term boost to UK exporters said the Bank of England Deputy Governor for Monetary policy.

In a speech at Imperial College Business School, Dr Ben Broadbent discussed the reasons for the current depreciation of the pound and what this implies for the UK economy as Britain prepares to leave the European Union.

Addressing an audience of staff, students and media he said that the fall in the pound had impacted on the public through “a rise in import prices and a squeeze on households” real income.

He said that since Britain voted to leave the European Union last year, the pound has dropped sharply which has given a short term boost to British exporters. This means that firms are currently enjoying the benefits from a weaker pound in the current climate and will continue to do so until the economic costs of Brexit become clear, once Britain leaves the EU in 2019.

“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,” said Dr Broadbent.

However, whilst consumers and retailers have been hit by the depreciation of sterling, the weaker pound has “come as a boon to many exporters” who are benefitting from the current uncertain market conditions in what Dr Broadbent described as ”post-referendum but pre-Brexit”. Last year, export prices rose by 12 per cent, which he said “will have significantly boosted exporters’ profitability and with it the incentive to invest in extra capacity.”

Dr Ben Broadbent addresses staff, students and journalists at the Business School

Britain has experienced several dips in the pound in recent decades, most recently following the global financial crisis in 2008 and 2009. Dr Broadbent said the current fall in the sterling “was clearly prompted by the referendum result.” The decision to leave the EU meant that the fall in the pound was driven by expectations that in future, exporting goods would become harder and more expensive.

Explaining this further he said: “On this occasion the depreciation reflects beliefs about a change in the UK’s future trading arrangements, but it’s acting on an economy where those arrangements are for the time being unchanged. The result – higher prices and profits but unchanged rules and costs – represents something of a sweet spot for exporters and businesses that compete with imports.”

With the world economy looking healthier than it has for some time, Dr Broadbent that said that the current fall in sterling provides a powerful incentive to invest in the UK’s tradable sector. This allows existing exporters to expand and encourages multinationals to relocate their production to the UK.

However, he warned that it wasn’t clear how long this boost to British industry will last. He said: “If the currency market is right, the UK’s future trading relationships will be less favourable; if it’s too pessimistic sterling is likely to rebound. Either way, future returns in the tradable sector may not be as healthy as they are right now. This may act as something of a deterrent to longer-term, sunk-cost investments in that sector.”

David Miles, Professor of Financial Economics and a former Monetary Policy Committee member at the Bank of England said: “As Britain prepares to trigger article 50, it was interesting to hear Ben’s views on what the current depreciation of the pound will mean for the future economic picture in the UK. We were delighted to host the Bank of England for this event and it was great to see the audience engaged in discussion on the themes highlighted in Ben’s speech.”

The full speech can be viewed on the Bank of England's website.