By Andy Bruce
BIRMINGHAM, England (Reuters) - British business investment will probably stay weak for the next few years because of uncertainty linked to Brexit, a Bank of England interest-rate setter said, calling into question suggestions of a Brexit deal "dividend" by the finance minister.
As Jonathan Haskel gave his first speech since joining the BoE's Monetary Policy Committee in September, Prime Minister Theresa May's Brexit strategy was in meltdown after her failure to win last-minute concessions from the EU ahead of a key parliamentary vote on Tuesday.
Haskel said a planned 21-month transition period that is supposed to come into effect when Britain formally exits the European Union on March 29 might run for longer than expected.
In the longer term, companies also need to know whether Britain will have a customs union agreement with the EU or strike a free trade agreement in order to have a sense of how high any new barriers to trade with the bloc will be, he said.
"The longer-term question is whether investment will eventually bounce back after uncertainty is resolved. The answer to this depends on what trade deal is struck," he said in a speech at the Department of Economics at the University of Birmingham.
"At least for the next few years the prospect of low investment seems possible."
Companies in Britain cut back their investment in each of the four calendar quarters of 2018 -- the longest such run since the depths of the global financial crisis -- as the country approached its departure from the European Union.
PRODUCTIVITY CONCERNS
Haskel said almost 70 percent of the slowdown in business investment in Britain since the Brexit referendum in June 2016 was linked to uncertainty over Brexit.
The BoE is concerned that weak business investment will aggravate Britain's low productivity growth, holding down growth in wages and making the economy more susceptible to inflation.
With May facing the risk of another humiliating defeat of her Brexit plan in parliament on Tuesday, she has opened up the possibility of a short extension to the current negotiations.
Finance minister Philip Hammond, seeking to help May get parliament behind her deal, has said investment is likely to pick up once companies have more clarity that Britain can avoid an economically damaging no-deal Brexit.
Haskel declined to comment on the implications of weak investment for the BoE's thinking on interest rates, saying that would be something for his next speech.
"Since this thing... is very hard to predict, that's the way I would think about it. But that will be the next speech, to trace through the relative impact on the demand and supply," he said during a question-and-answer session after his speech.
The BoE has said it expects to resume raising interest rates if Britain can seal a deal to avoid a no-deal Brexit.
Governor Mark Carney and some other policymakers have said they think they would probably need to cut rates if Britain fails to secure a transition deal to ease the shock of its exit from the EU.