Brexit is fuelling Britain’s cost of living crisis, according to the former Deputy Governor at the Bank of England Sir Charlie Bean.
Interviewed by BBC Radio 4 on Thursday, the economist said inflation appeared to be “worse” in Britain compared to other European countries.
When asked why, he explained the labour market was “much tighter” than on the continent, reflecting the exodus of half a million workers during the COVID pandemic.
“Brexit has made it harder for firms to suck in the extra labour they need at short notice from abroad,” he said.
Labour shortages create inflationary pressure as businesses have to compete more by offering higher salaries, which feed into the economy.
Unemployment was at a historically low level of 3.8% in April, according to the Office for National Statistics, with the number of vacancies at record highs last year.
Brexit has made it harder for EU nationals to come and work in Britain, though COVID also triggered many foreign workers to return home.
“Similarly in product markets they [companies] are less competitive because of the frictions in trade with the rest of Europe,” said Sir Bean. This creates inflation as businesses face less pressure to reduce prices or improve their productivity.
“The UK is on a path to long-term decline, as Brexit reduces trade and economic growth, harms the NHS and key industries with staffing shortages, and pushes up costs for businesses and consumers – fuelling the cost of living crisis hammering the UK,” said Scottish Nationalist Party Deputy Leader Mhairi Black in a press release sent to Euronews.
Inflation remained at 8.7% in May – the same as in April. The announcement on Wednesday offered no relief to the millions in Britain skipping or cutting down on meals, as Euronews reported on Tuesday.
Sir Bean’s comments came before the seventh anniversary of Britain’s vote to leave the European Union.
“We will have more money, more control and more say in our destiny if we Vote Leave,” wrote politician and Brexit campaigner Michael Gove in the Telegraph in 2016.
Similar promises were made by fellow Brexiteer Jacob Rees-Mogg: “The opportunities for Britain outside the European Union are enormous,”
“We would be a freer, richer and more successful country outside the EU,” he also wrote in the Telegraph ahead of the vote in 2016.
Researchers at the London School of Economics found extra red tape from Brexit could have added £250 to an average household’s food bills between December 2019 and March 2023.
Most of this increase came before the current cost of living crisis, as businesses prepared to implement new Brexit measures.
More than a quarter of Britain’s food is imported from the EU, though it remains 7% cheaper on average compared to the bloc, according to academics at Oxford Economics.
Sir Bean’s comments that Brexit was driving soaring inflation were echoed by the former governor of the Bank of England Mark Carney earlier in the week.
“We laid out in advance of Brexit that this will be a negative supply shock for a period of time and the consequence of that will be a weaker pound, higher inflation and weaker growth,” Carney said.
Now that’s exactly what’s happened. It’s happened in coincidence with other factors, but it is a unique aspect of the economic adjustment that’s going on here,” he told the Daily Telegraph.