Brexit already costing UK £800m per week, Bank of England economist says

BoE economist warns no-deal Brexit would likely lead to interest rate cut

Caitlin Morrison@citycait
Thursday 14 February 2019 13:36
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Chancellor Philip Hammond: Brexit deal has many critics but its the best plan available to protect the economy jobs and businesses

Brexit has already cost the UK economy £40bn per year – or £800m per week – in the period since the EU referendum in 2016, according to Bank of England economist Jan Vlieghe.

Mr Vlieghe estimates that since the vote, Britain has lost 2 per cent of GDP “relative to a scenario where there had been no significant domestic economic events” – equating to a total of around £80bn over the past two years.

The losses are not due to any changes to the UK’s trading relationship with the EU, but instead are “related to expectations of future changes, and uncertainty about future changes”, he said.

Companies have told the central bank that Brexit fears had hit investment, with many scaling back plans for expansion.

Mr Vlieghe said Brexit uncertainty weighing on the exchange rate, and therefore household spending power, was another factor in the economic slowdown.

Mr Vlieghe, who is a member of the Bank’s monetary policy committee, also said that interest rates are more likely to go down if the UK crashes out of the EU with no deal.

“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,” he said in a speech on Thursday.

“We will have to judge in real time how well inflation expectations remain anchored, and how households and businesses are reacting to the disruptions.”

Mr Vlieghe’s comments come one week after the Bank slashed its growth forecasts for the next year, and said the chance of a recession in 2019 was now one in four.

“This slowdown mainly reflects softer activity abroad and the greater effects from Brexit uncertainties at home,” said the bank, as it held the base rate at 0.75 per cent.

BoE governor Mark Carney also warned that the risk of a no-deal Brexit had gone up.

“I would have described no deal, no transition, a few years ago as a low-probability event,” he said.

“I would describe it now as not the central scenario. In other words... the probability has gone up.

“We’re seven weeks before [the] Brexit date and the range of potential outcomes is very wide. Time is limited.”

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