Bank of England policy maker Catherine Mann waded into the Brexit debate, blaming UK’s departure from the European Union for adding to inflation.
(Bloomberg) — Bank of England policy maker Catherine Mann waded into the Brexit debate, blaming UK’s departure from the European Union for adding to inflation.
Mann, a US economist who sits on the rate-setting Monetary Policy Committee, said there were signs that the cost-of-living crunch was beginning to turn a corner in the US and the EU — but not yet in the UK.
All three regions had faced shocks to demand and supply driven by the “Covid and lockdown-induced global demand rotation and subsequent supply bottlenecks,” and the energy shock caused by Russia’s invasion of Ukraine, Mann said Monday at the Lámfalussy Lectures Conference in Budapest.
“However, the UK has also been affected by a third type of shock which makes it unique: no other country chose to unilaterally impose trade barriers on its closest trading partners,” she added.
Her comments are likely to anger some Conservative members of Parliament, who have criticized the central bank for being too pessimistic about the UK’s prospects after leaving the EU.
Inflation in the UK is still at 10.5%, only marginally down from the 41-year high of 11.1% reached in October and still well above the BOE’s 2% target.
In the euro area, however, the rise in the cost of living has fallen back to 8.5%, and in the US to 6.5%.
Addressing inflation rates across the three regions, Mann said: “Is there a turning point already visible in the data? For the US and the euro area, yes; for the UK, maybe stabilization.”
She explained that the country was suffering from the “worst of all worlds” — Covid, the energy shock, which has been particularly severe for Europe, and an especially tight labor market which has also been seen in the US.
Her downbeat comments come just days after the BOE slashed its estimate of potential output, the economy’s growth speed limit, to 0.7% for the next three years — down from 0.9% in November.
Unveiling the forecasts at its latest MPC meeting last week, it also blamed a “constellation of economic shocks” including Brexit.
Though the BOE does not think the economic cost of leaving the EU has grown, it said more of the impact will now come earlier.
And it reiterated its predictions that the UK’s “level of productivity would be around 3.25% lower in the long run” because of its withdrawal from the EU free-trade area.
Fleshing out the MPC’s forecasts Monday, Mann said Brexit had impacted the growth trend in the UK’s potential supply.
“It appears that increases in early retirement and long-term illness have reduced labor supply and Brexit has reduced trade and investment efficiencies,” she said.
Read more:
- Brexit Is Costing the UK £100 Billion a Year in Lost Output
- Catherine Mann Says BOE Must ‘Stay the Course’ on Rate Rises
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