According to Bank of England (BoE) deputy governor Ben Broadbent, the drop in the value of the pound has acted as an important “shock absorber” for the British economy.
Speaking on BBC Radio 5 live on Monday, Broadbent said that “having a flexible currency is an extremely important thing especially in an environment when your economy faces a shock that are different to your trading partners”.
His comments suggest that the central bank won’t intervene in the foreign exchange market.
When asked whether the BoE would intervene to boost the value of the pound, he said: “In the shape of the referendum, we’ve had exactly one of those shocks and allowing the currency to react to that is a very important shock absorber.”
Since the Brexit vote in June the value of the pound has dropped by almost 20% against the US dollar.
Broadbent also said that the central bank will not hike rates to meet its 2 percent inflation target, as it could lead to “undesirable consequences” such as lower growth and higher unemployment.
“In all likelihood [inflation] will rise above the two per cent target we have”, said Mr Broadbent.
On Friday the Governor of the BoE, Mark Carney, said that the bank is not indifferent to the level of sterling, but stressed that the primary goal is to target inflation more broadly.
“Our job is not to target the exchange rate, our job is to target inflation,” Mark Carney said during a public meeting in Nottingham.
“But that doesn’t mean we’re indifferent to the level of sterling. It does matter, ultimately, (for) inflation and over the course of two to three years out, so it matters to the conduct of monetary policy.”
