Brexit Is Hurting The UK Economy, Bank Of England Official Says

Bank of England officials appearing before the Treasury select committee of MPs.
Bank of England officials appearing before the Treasury select committee of MPs.

Bank of England officials appearing before the Treasury select committee of MPs.

Brexit is harming the UK economy, a Bank of England policy maker has said in the latest stark warning about the impact of the 2016 vote.

Swati Dhingra, a member of the central bank’s rate-setting committee, told MPs that real wages are lower in the UK because of the referendum six years ago.

She also said Brexit had added 6 per cent to UK food prices, as inflation hit a 41-year high.

Dhingra, who is also a professor at the London School of Economics, said: “It’s undeniable now that we’re seeing a much bigger slowdown in trade in the UK compared to the rest of the world.”

She added: “The simple way of thinking about what Brexit has done to the economy is that in the period after the referendum there was the biggest depreciation that any of the world’s four major economies have seen overnight.

“That contributed to increasing prices and reduced wages – and I’m not talking simply through real wages, but also through nominal wages – we think that number is about 2.6% below the trend that real wages otherwise would have been on.”

She was appearing before the Treasury select committee at parliament alongside governor, Andrew Bailey, and other officials.

Earlier this week, a former Bank of England policymaker said that the UK economy has been “permanently damaged” by Brexit, because it reduced the country’s potential output and resulted in reduced investment into UK businesses.

In an interview on Bloomberg TV, Michael Saunders said that Jeremy Hunt’s “austerity budget” this week is a consequence of leaving the EU.

In his own warning, Bailey mapped out how the UK was recovering far more slowly from the pandemic than the US and the eurozone. 

“I’m afraid it’s not a good story I’m about to tell you,” he said. “The level of UK GDP now versus the pre-Covid level, compared to other economies is I think -0.7 per cent.

“So in other words, the economy is smaller than it was at the end of 2019 in terms of GDP. The euro area is +2.1 and the US on the latest number, which has just come out, is +4.2.

“It is a dramatic difference. I think there’s probably quite a few things account for it – the approach that’s been taken towards energy prices, fiscal support, the US has had a lot of fiscal support and is in a very different position in terms of the economy.

“So there’s probably quite a lot of things contributing to it, but it’s pretty striking.”

The governor also told MPs how former prime minister Liz Truss’s mini-budget had damaged the UK’s reputation abroad.

Bailey said people he had met in the US during the fallout from the announcement in September expressed disbelief at the steps that the government had taken.

“We have damaged our reputation internationally because of what happened,” he said.

“I was in Washington… at the IMF (International Monetary Fund) annual meetings, which is one of the biggest events of the year internationally.

“People were saying ‘we didn’t think the UK would do this’.

“It will take longer to rebuild that reputation than it will be to correct the gilt curve, so we have to tread carefully.”

He said that the reputation “has taken a knock”.

Truss became the shortest-serving prime minister in British history and Kwasi Kwarteng one of the shortest-serving chancellors amid the fallout following the mini-budget.

It led to a massive run on the pound, pushing the currency to its lowest point against the US dollar in history, while the cost of government borrowing soared.

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