Brexit is partly to blame for high levels of inflation in the UK, the Bank of England’s chief economist has said.
Huw Pill said Britain’s exit from the EU was having an impact on prices, as food inflation surged to 12.4 per cent to hit a new record high during the cost of living crisis.
“Brexit has probably reduced some of the competitive pressure in the goods market, because it just is harder to import things into the UK from Europe … that has probably proved to be somewhat inflationary,” the chief economist told a conference on Wednesday.
Asked about the wider contribution of Brexit in Britain’s economic woes, Mr Pill added: “Brexit plays a part, but I don’t think it’s the whole story and probably only part of the story. But to my mind it has had some effect.”
He also told the ICAEW accountacy conference that Brexit had made it more difficult for companies to hire staff from the EU – questioning whether the shift to non-EU migrants had been as “productive” to the UK economy.
“Whether those people are as immediately productive and fungible in the labour market, I think is at least open to question,” Mr Pill said.
Earlier this month Bank of England officials told MPs on the Treasury select committee that the impact of Brexit was hitting Britain’s trade around the world.
“It’s undeniable now that we’re seeing a much, much bigger slowdown in trade in the UK compared to the rest of the world,” said Swati Dhingra, an external member of the Bank’s Monetary Policy Committee (MPC).
“There’s also the services exports side … there again, we’re seeing a really strong stagnation. We’re definitely performing below trend in terms of the exports numbers, in terms of the imports, even probably a bit bigger than that,” she added.
Catherine Mann, another member of the MPC, said small firms were being hit hardest by Brexit due to the extra paperwork, also adding to inflation.
The latest analysis shows that UK export growth has fallen well behind that of other major economies, including Germany and France, despite government claims that Brexit would boost British business abroad.
Figures collated by the Commons Library show that UK trade exports grew just 24.4 per cent between 2010 and 2021, the lowest rate of growth among G7 countries apart from Japan. The EU averaged export growth of 35.5 per cent during the same period.
The Tony Blair Institute said grim Britain’s economic performance showed that it was time for Rishi Sunak to “revisit” the Brexit trade deal already agreed with the EU as part of an effort to forge closer economic ties with the bloc.
It comes as food inflation accelerated considerably further to 12.4 per cent from October’s 11.6 per cent – the highest rate on record as rocketing energy, animal feed and transport costs forced up prices.
“Winter looks increasingly bleak as pressures on prices continue unabated,” said British Retail Consortium chief executive Helen Dickinson – saying families would be cutting back on seasonal spending.
