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Brexit is contributing to rising food prices as the country heads into recession, a senior Bank of England policymaker has warned.
Swati Dhingra – the newest member of the Bank’s Monetary Policy Committee (MPC), which sets interest rates – also used an interview. the observer To suggest that the central bank’s next rate hike should peak below 4.5%, the level some City investors expect. “The market is probably underestimating the damage it does [level of interest rates] The UK economy can be the cause,” she said.
Dhingra says more aggressive measures to raise borrowing costs from the current level of 3% could exacerbate Britain’s economic slowdown.
The MPC will take its next decision on interest rates on December 15 after imposing eight consecutive hikes in a year to control inflation.
Dhingra said: “I think we should all be concerned about … are we going to prolong and deepen the recession if tightening continues at that pace?”
The trade expert at the London School of Economics (LSE), who before joining the bank in August had repeatedly warned of the fallout from Brexit, said there were clear signs that leaving the EU was pushing up prices and slowing the economy. People “need to be aware of what the economic costs are”, she said.
While the invasion of Ukraine and the fallout from Covid were the more significant drivers of the UK’s cost of living shocks, she said, it was important to highlight the damage from Brexit as well. “I’m not going to make a statement about his political choice,” she said, but added: “If it was a political choice, and it has some economic cost, people need to be aware of that economic cost. And it’s theirs. Whether it changes minds is another matter.
Researchers at LSE’s Center for Economic Performance warned last week that Brexit could add almost £6bn to UK food bills in the two years to the end of 2021, with food costs rising by around 3% due to border delays, red tape and other costs. a year.
Three-quarters of the UK’s imports were from the EU, Dhingra said, which meant that “naturally, if there are non-tariff barriers starting, we’re going to see that – not fully but to some extent – reflected in food prices.”
She added: “It doesn’t matter what kind of analysis you look at”, the effects of trade alone were the minimal economic hit from Brexit at 2% of GDP. This will be exacerbated by weak business investment, lower foreign direct investment and reduced productivity costs.
Dhingra is the latest in a line of Bank of England figures who have broken their silence on the negative effects of Brexit on the economy.
The latest opinion poll for the observer shows that two-thirds of voters (66%) now believe Brexit has gone “badly” while just 22% believe it has gone well. Conservative voters are also fairly evenly split, with 51% saying it has gone well and 39% saying it has gone badly.
Among all voters, a total of 59% want to rejoin the EU (34%) or remain outside the bloc and maintain a close relationship (25%). Only 15% want the status quo and 14% want even less with the EU. Some 63% believe the UK should have a relationship that would allow it to re-enter the EU single market, while 14% oppose the idea.
In a sign that people increasingly dislike the reality of border controls, 57% support removing all document and identity checks (such as passport controls and documents for export and import) while 21% do not.
Dhingra said the fall in the pound immediately after the 2016 referendum was the biggest devaluation for any of the world’s four major currencies since 1944. It was “really big news” in terms of the impact of Brexit, she said, as the devaluation “has been reflected in falling real wages as well as rising prices as the cost of imports rises.”
Meanwhile, uncertainty about UK economic policy had contributed to “stagnation in terms of business investment” since the vote, she said. UK trade with the EU fell sharply after the end of the transition period on 31 December 2020 and Dhingra said there were signs Brexit was still having an impact. “It’s pretty clear from the data that’s coming in now that there’s a slowdown.”
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