A Bank of England policymaker warned that a dearth of business investment since Britain exited the European Union has cost the UK economy £29 billion (€32.75 billion), or about £1,000 per household.
Prof Jonathan Haskel, an external member of the bank’s interest rate-setting monetary policy committee, said business investment “was stopped in its tracks in 2016″ and the UK “suffered much more” on productivity because of the impact of Brexit as a result. In an interview with Matthew Klein on web newsletter The Overshoot, he said he expects that figure to rise further.
Modelling what would have been expected had UK business investment continued at its pre-Brexit vote rate and comparing it to the actual position today, he said: “If you do all of that, you find that the current productivity penalty is about 1.3 per cent of GDP. That 1.3 per cent of GDP is about £29 billion, or roughly £1000 per household.
“At the end of the forecast period, the penalty goes up to something like 2.8 per cent of GDP,” he said.
He acknowledged that, in the period up to 2016, the UK had had a “bigger slowdown in productivity [than other countries] up to 2016, but we had a lot of investment”. He said the UK economy was just starting to recover in the run-up to the Brexit vote “but then we were stymied again”.
“We had a big boom between 2012-ish to 2016,” Prof Haskel said. “But then investment just plateaued from 2016, and we dropped to the bottom of G7 countries.”
The Bank of England policymaker also suggested that delays in the NHS might be responsible for a rise in economic inactivity in the UK that runs counter to the experience in most other countries. He said the inactivity rate in 15- to 64-year-olds had increased by 0.8 of a percentage point between the fourth quarter of 2019 and the third quarter of 2022.
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“We are finding some weak correlations between regional increases in inactivity and regional increases in self-reported ill-health within the UK,” Prof Haskel said in the Overshoot interview.
The comments come as British wage and inflation data this week are likely to support arguments from Bank of England policy hawks, including Prof Haskel, who want to keep raising interest rates, adding to the quickest surge in borrowing costs in three decades. Economists expect two separate reports will show that consumer prices are still rising at a double-digit pace and that companies are boosting pay at the quickest pace on record, excluding the year that was distorted by pandemic lockdowns.
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Bank of England governor Andrew Bailey and his colleagues have signalled they’re near the end of the hiking cycle that started 14 months ago and brought the key rate from near zero to 4 per cent, the highest since 2008. Nevertheless, they also view a tight jobs market and continuing pressures on pay as potential stumbling blocks in their battle to rein in inflation.
“Evidence that wage pressures are continuing to rise should keep pressure on the Bank of England to hike rates further,” said Sonali Punhani, head of UK economics at Credit Suisse. – Bloomberg/Guardian
