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Mark Carney: Brexit has made us poorer

The Bank of England governor said Brexit has led to a “hit to incomes” and warned that raising trade barriers hurts the least well off the most.


Speaking at the annual Mansion House event, Bank of England governor Mark Carney made a direct link between Brexit and weaker economic growth and weaker real income growth. He added that whilst monetary policy from the Bank couldn’t “prevent weaker real income growth”, it could influence how this “hit to incomes is distributed between job losses and price rises”.

Since the prospect of Brexit emerged, financial markets, notably sterling, have marked down the UK’s economic prospects.

Monetary policy cannot prevent the weaker real income growth likely to accompany the transition to new trading arrangements with the EU.

But it can influence how this hit to incomes is distributed between job losses and price rises.

Mark Carney, governor of the Bank of England

In comments about the Bank’s decision not to raise interest rates just yet, he said this was right and that he would like to hold on until they are clearer about how “the economy reacts to the prospect of tighter financial conditions and the reality of Brexit negotiations”.

He highlighted the significance of the services sector to the UK saying “financial services runs a 1.5% trade surplus with Europe alone” and the “entire services sector runs a 5% surplus with the world and employs 85% of UK workers”.

Carney advocated “services liberalisation” as a more efficient way of balancing the UK deficit and pointed out that barriers in services trade “are typically not tariffs but ‘behind the border’ differences in regulatory standards and trading conditions”.

The governor’s speech was an important reminder that trade is not just about tariffs but also non-tariff barriers. The absence of non-tariff barriers in the single market is key to the success of UK trade in services. Being in the single market means we are effectively trading in the same conditions across a huge market. And as we’ve reported previously, economic research such as that by NIESR and Cebr suggest the UK would lose significantly from leaving the single market – even if a free trade deal with the EU could be agreed. This is because a free trade deal on services is much trickier to achieve – even more so should the UK government insist on leaving the jurisdiction of the European Court of Justice (ECJ).

UK faces losing £36bn a year from Theresa May’s hard Brexit

Carney highlighted the importance of agreeing a transition arrangement in Brexit negotiations as businesses would soon need to make a decision on whether to “activate contingency plans”. He also had time for a cake reference saying “before long, we will all begin to find out the extent to which Brexit is a gentle stroll along a smooth path to a land of cake and consumption”.

The chancellor Philip Hammond who gave a speech before Carney also advocated for a transition arrangement saying that “current customs border arrangements” would need to remain in place “until new long-term arrangements are up and running”. However, whilst maintaining current customs arrangements would help with producing “frictionless” trade for goods, it would do little for services trade. You can see more on on Hammond’s speech in the Guardian’s politics live blog.

Earlier in his speech, the Bank of England governor said recent events including the terror attacks and Grenfell Tower tragedy highlight the need “to renew our shared commitment – whatever our differences – to promote the common good”. And that this includes “pursuing a Brexit, and building an economy, that works for all”.

Raising barriers to trade disproportionately hurts the least well off through higher prices and fewer opportunities.

Mark Carney, governor of the Bank of England

In concluding his speech, Carney warned that “raising barriers to trade disproportionately hurts the least well off through higher prices and fewer opportunities”.

You can read his full speech at bankofengland.co.uk.


Image: © Twocoms / Shutterstock.com
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