Monday, February 13, 2023 12:47 PM
The sharp cut in business investment after Brexit has dealt a £1,000 hit to every UK household, a rates official at the Bank of England has claimed.
Speaking to The Overshoot, Jonathan Haskel, an external member of the Monetary Policy Committee (MPC), said the “productivity penalty” caused by a huge drop in capital spending since the 2016 referendum has amounted to 1 .3% of the loss of GDP growth.
Had investment continued its pre-Brexit trend, the economy would have grown by around £29bn, Haskel said.
A major slowdown in intangible investment – things like intellectual property and upskilling employees – has led to an overall decline in capital spending in the UK since the financial crisis, bringing with it productivity growth.
“Since the financial crisis, there has been a slowdown in the pace of intangible investment – not so much in the US, but a little in Europe and a little in the UK. So that means that with less intangible investment, it slows down productivity,” the pricing manager said.
Most wealthy economies have seen a slowdown in productivity growth since the 2008 banking crisis, but Britain’s decline has been much deeper, mainly because the country has a larger financial sector, said Haskel.
Growth in UK living standards has stalled since Brexit
“But I think it really goes back to Brexit. If you look at the period up to 2016, it’s true that we had a bigger slowdown in productivity up to 2016, but we had a lot of investment. We had a big boom between 2012 and 2016. But then investment plateaued from 2016, and we fell to the bottom of the G7 countries,” he added.
Raising productivity growth is key to improving household living standards because it allows companies to give workers wage increases without driving up inflation.
Britons are highly exposed to the current cost of living crisis due to weak productivity growth for more than a decade, limiting wage growth.
Haskel, who voted with a 7-2 majority at the Bank’s last meeting earlier this month to raise interest rates by 50 basis points to 4%, said the UK is “caught in this terrible impasse of having a tight American labor market with a tight European energy market”.
Inflation last year hit a 41-year high of 11.1% in October, but has since fallen two months in a row to 10.5%.
New figures from the Office for National Statistics released on Wednesday are expected to show the rate of price increases remained in the double digits last month.
The Bank estimates that inflation is on track to decline to around 4% by the end of the year, still double its target of 2%. He raised his rates 10 times in a row.