Political Plan Key to Limiting Brexit Impact, Mervyn King Says

(Bloomberg) -- Ending political turmoil is key to limiting Brexit's impact on the U.K. economy, according to former Bank of England Governor Mervyn King.

“There's no doubt that you would expect some slowdown, because of the sheer uncertainty, which will affect investment,” King said at an event at the Wall Street Journal in London on Thursday. “What's important therefore is to fairly quickly put in place a strategy to help carry out the trade negotiations.”

While the former governor said he didn't know whether the economy would be better or worse off in the long run because of the vote to leave the bloc, the risks of Britain's political vacuum damping investment and sentiment are already clear. Business confidence fell to a 4 1/2-year low in the days after the vote, Lloyds said on Thursday.

With British politics in chaos and a clear plan as to how the U.K. will divorce from its biggest trading partner yet to emerge, King's successor Mark Carney has been quick to communicate his strategy for handling the fallout. Theresa May, the front-runner to replace David Cameron as prime minister, has said exit negotiations should not be triggered before the end of 2016.

The U.K. government should focus on trade deals, being at the forefront of financial regulations, agricultural subsidies and its relationship with Northern Ireland, King said. He had no advice for the central bank, which will announce its first interest-rate decision since the referendum on July 14.

Carney has indicated easing may start in the summer and investors are pricing in a 78 percent chance the rate will be lowered from its current level of 0.5 percent at the July meeting. The bank will produce new forecasts for growth and inflation alongside its subsequent policy announcement in August.

“As far as I'm concerned, if they feel that a certain course of action is the right one, that's fine by me,” King said. “They have the data, they have the time, they have the people around to discuss it, and I will not second-guess the actions of the Monetary Policy Committee or the bank.”

--With assistance from Andrew Atkinson To contact the reporter on this story: Jill Ward in London at jward98@bloomberg.net. To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Emma Charlton, Kevin Costelloe