Bank of England deputy says plunging pound is a ‘shock absorber’ for the economy

bank of england

With the pound now almost a fifth less valuable compared to the dollar since the vote on June 23, the Bank’s deputy governor Ben Broadbent said the decline was helping soothe some of the effects of having trade relationships thrown into question, reports The Telegraph.

“Having a flexible currency is an extremely important thing, especially in an environment when your economy faces shocks that are different from your trading partners,” Mr Broadbent told BBC Radio 5.

“In the shape of the referendum, we’ve had exactly one of those shocks. Allowing the currency to react to that I think is a very important shock absorber.”

Mr Broadbent recently conceded that the British economy has been more robust than the central bank had expected following the Brexit vote.

Mark Carney, the Governor of the Bank of England, said on Friday that the central bank was not “indifferent” to the dwindling value of sterling, but that his main job was to target inflation more broadly, rather than the exchange rate.

The latest inflation figures are due on Tuesday and will give a glimpse of how prices have moved in the year to September. Economist have pencilled in a jump to 0.9 per cent.

The pound slid to below $1.22 and the price of government bonds dropped on Monday as ministers prepare to allow Britain to depart from the EU without preferential trading with the bloc – a so-called “hard Brexit”.

The increasing cost of imports has triggered disagreements between large trading partners including Tesco and Unilever, which last week briefly cut off supplies of Marmite and other household products to Britain’s biggest supermarket in a row over which firm should shoulder the cost of recent currency movements.