Brexit has already hit UK GDP by up to £40bn, Bank of England governor Mark Carney reveals

The governor said that real household incomes are about £900 per household lower than the bank forecast in May 2016

Ben Chu
Economics Editor
Tuesday 22 May 2018 11:25 BST
Bank of England Governor Mark Carney: Brexit has already hit UK GDP by up to £40bn

Mark Carney has reiterated the view of the Bank of England that the vote for Brexit has already knocked about 2 per cent off the size of the UK economy, a sum equivalent to around £40bn.

He added that the cost for each UK household was around £900.

Giving evidence to the Treasury Committee on Tuesday, Mr Carney said that the economy has underperformed the bank’s pre-referendum forecasts and that the Leave vote, which prompted a record one-day fall in sterling, was the primary culprit.

“If you look at where the economy is today, relative to that forecast, it’s more than 1 per cent below where it was despite very large stimulus provided by the Bank of England, a fiscal easing by the government and global and European economies, which are much much stronger than they were previously,” he said.

“If you adjust for those factors, the economy is about one and three-quarters – one and a half, one and three-quarters, up to 2 per cent - lower than it would have been.”

He added: “Real household incomes are about £900 per household lower than we forecast in May of 2016, which is a lot of money.”

The governor first estimated in January, speaking in Davos, that the cost of the Brexit vote was heading for 2 per cent of GDP by the end of 2018.

Wes Streeting, a Labour MP on the committee and supporter of the People’s Vote campaign, said: “The governor of the Bank of England is quite clear that the Brexit vote has left us all poorer and worse off, and the government’s botched Brexit negotiations threaten to make the situation even worse for generations to come. Evidence like this demonstrates exactly why we need a People’s Vote on the final Brexit deal.”

Mr Carney also warned that the UK urgently needed the single market and customs union transition after March 2019.

“If the implementation agreement doesn’t come to pass for whatever reason, there would be a potentially considerable real economy adjustment,” he said.

GDP growth in the first quarter is estimated by the Office for National Statistics to have slumped to 0.1 per cent, the weakest in more than five years. Productivity growth also slipped by 0.5 per cent.

However, the bank believed this was largely attributable to snow disruption, the governor told the committee.

“Our view is not that circumstances changed in the first quarter, it’s more likely to have been temporary and idiosyncratic factors that slowed the economy,” he said.

The bank says the growth rate will ultimately be revised up to 0.3 per cent, and that growth will pick up to 0.4 per cent in the second quarter of 2018.

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