Brexit has already cost the UK economy at least £80bn since the EU referendum, and a damaging no-deal scenario could force an emergency cut in interest rates, according to a Bank of England rate-setter. Gertjan Vlieghe, a member of the Bank’s monetary policy committee, said that since the vote in June 2016, the economy had…
Brexit has already cost the UK economy at least £80bn since the EU referendum, and a damaging no-deal scenario could force an emergency cut in interest rates, according to aBank of Englandrate-setter.
Gertjan Vlieghe, a member of the Bank’smonetary policy committee, said that since the vote in June 2016, the economy had lost about 2% of GDP compared with a scenario where there had been no significant domestic economic events.
Britain had lost about £40bn a year, or about £800m a week of lost income, he said, in the period since the referendum as its economy stalled while the rest of the world recorded one of its strongest expansions of the past decade.
Vlieghe’s estimate for the weekly cost of Brexit so far is more than double the£350m the Leave campaignclaimed could be saved on EU membership fees and instead spent on the NHS. The claim, emblazoned on the side of the campaign’s battlebus, became a key focus for debate in the run-up to the vote.
Vlieghe said in London on Thursday: “That 2% of GDP is not trivial, that’s £40bn or if you prefer it in bus units, it’s £800m a week.”
He said business investment in Britain had been stuck around zero, with a drop of 3.7% in 2018, despite an upswing worth about 6% annually in the rest of the G7. Consumer spending also slowed as households came under pressure from higher prices, sparked by the sharp fall in the value of the pound straight after theBrexitvote.
“It is very unusual for investment to shrink that much when the rest of the world is doing pretty much just fine, until at least recently.
“UK growth in the past two years has been weaker than we would have expected based on the performance of the global economy alone,” he said. “Based on what happened in the rest of the world we would have expected UK growth to accelerate but actually it slowed.”
Several estimateshave been made before to quantify the cost of the Brexit vote. Mark Carney, the Bank’s governor, has previously said the vote cost households about£900 each in lost income. There are also various estimates for the potential hit from Britain crashing out without a deal on 29 March.
Threadneedle Street estimates the worst-case disruptive scenario could spark a slump into a recession withworse consequences for Britain than the 2008 financial crisis, while the Treasury estimates that all Brexit options areworse for the economy than remaining in the EU.
Vlieghe, an independent economist on the Bank’s nine-member MPC, said the magnitude of the potential negative hit to the economy was uncertain, particularly over the long term.
While he said there was an important democratic debate on the possible trade-offs between the political and economic consequences of Brexit, he added that leaving the EU without a deal could warrant an emergency cut in interest rates.
“In the case of a no-deal scenario I judge that an easing or an extended pause in monetary policy is more likely to be the appropriate policy than a tightening,” he said.
However, should Britain secure a smooth Brexit deal, the world economy manage to avert a further slowdown and inflationary pressure in Britain rise, he said it would be appropriate for the Bank to raise rates around once per year.