Brexit is a major cause of the return to austerity in the UK, says senior economist | Brexit

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Brexit is the ultimate reason the UK is now facing a new wave of austerity, a former Bank of England interest rate setter has said.

“The UK economy as a whole has been lastingly damaged by Brexit,” Michael Saunders, who was an external member of the central bank’s monetary policy committee, said in an interview with Bloomberg TV.

“It has significantly reduced the potential output of the economy, eroded business investment,” he said, adding: “If we hadn’t had Brexit, we probably wouldn’t have been talking about a austerity budget this week”.

“The need for tax increases, spending cuts wouldn’t exist if Brexit hadn’t reduced the economy’s potential output so much.”

Saunders joined the rate-setting committee shortly after the Brexit referendum result in 2016 and left in August this year.

He said the “main legacy of this period” was low economic output.

Prime Minister Rishi Sunak and Chancellor Jeremy Hunt have both warned that the autumn statement is likely to include spending cuts and tax increases.

Hunt, who is due to address parliament on Thursday, said last week there would be a “difficult road to travel”.

Saunders’ remarks came as calculations, compiled into an index by Bloomberg, suggested the US dollar value of London-listed stocks had been overtaken by Paris.

This means that London has lost its crown as the biggest hub for stock quotes in Europe.

Asked about this turn of events, Saunders said it was just one illustration of the wider damage wrought by Brexit.

The depreciation of the pound following the Brexit referendum and the aftermath of the Liz Truss mini-budget was likely a factor behind the change in fortunes.

Long-term concerns about consumer resilience in the face of the cost-of-living crisis have also depressed stock valuations of mid-sized listed companies with a large proportion of their business in the UK.

Some of the intentions behind Truss’ failed mini-budget were correct, Saunders said. The ambition to try to increase the potential of the British economy, the ceiling below which can generate non-inflationary growth, was justified.

“Liz Truss, in her brief failed premiership, got that point right.”

The methods of cutting taxes and pushing for deregulation chosen by Truss and his chancellor, Kwasi Kwarteng, were less judicious, however.

“I would put more emphasis on improving trade ties with the EU,” he said, while investing in education and tackling long-term illnesses among people of childbearing age. work.

His remarks echo those of investors who have said the UK could improve overall productivity – non-inflationary growth – if it reviews its trade ties with the Continent.

Other suggestions for increasing production included increasing the number of skilled and unskilled workers by allowing more immigration to the UK.

theguardian

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