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Brexit has cost British economy £80bn – Bank of England

UK News | Published:

Labour MP Owen Smith described the figures as ‘eye-wateringly high’.

Brexit has cost the British economy at least £80 billion since the referendum and the shock of a no-deal divorce could see interest rates slashed, according to a Bank of England policymaker.

Gertjan Vlieghe, an external member of the central bank’s Monetary Policy Committee, said that, since the June 2016 vote, 2% has been shaved off GDP.

This, he said, amounts to a loss of around £800 million per week, or £40 billion per year.

“The analysis suggests that since the vote in June 2016, we have lost 2% of GDP relative to a scenario where there had been no significant domestic economic events.

“That amounts to around £40 billion per year, or £800 million per week of lost income for the country as a whole,” he told an audience in London.

The rate-setter pointed to a collapse in business investment into the UK, which has been stuck at zero, while in G7 peers it has accelerated to 6% a year.

“Firms have been saying in a number of surveys that the uncertainty about our future relationship with the EU is a source of concern for them that has been weighing on their investment spending, as plans for expansion have, on average, been scaled back,” Mr Vlieghe said.

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Labour MP Owen Smith described the figures as “eye-wateringly high”, and warned that the NHS will suffer as a result.

“Damaging our economy makes addressing these problems harder, not easier. It means less money for the NHS and our other national priorities.

“This is a vivid and painful reminder that the promises of Brexit are not being – and cannot be – delivered.”

Mr Vlieghe also warned that interest rates are more likely to be cut than hiked if Britain crashes out of the European Union without a deal.

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“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 response than a tightening.”

His comments come with just over a month to go before Britain’s departure from the bloc on March 29 and with Parliament in a deadlock over Brexit, having rejected Prime Minister Theresa May’s deal.

Last week, the Bank slashed its growth forecast for the economy and warned about the mounting risk of a recession in the event of a no-deal Brexit.

Brexit
Bank of England Governor Mark Carney has urged politicians to find a Brexit solution (Victoria Jones/PA)

Mr Vlieghe said a no-deal Brexit without any transitional arrangements would lead to “economic disruption, which could possibly be severe”.

If a deal is reached which includes a transitional period, the pound would be likely to strengthen, which may lead to a tightening of monetary policy, he said.

However, Mr Vlieghe said that recent economic data, including inflation and GDP, pointed to a sluggish economy.

“Given that the data even in the past few weeks are suggesting the slowdown is continuing into the early part of this year, both domestically and globally, a lot needs to go right for this forecast to come to pass.

“I feel I can probably wait to see evidence of growth stabilising and inflation pressure rising before considering the next hike in Bank rate.”

January inflation fell to a two-year low of 1.8% and undershot the Bank’s 2% target, while recent GDP data revealed that economic growth slowed in the fourth quarter of 2018.

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