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Brexit explains 80% of UK inflation – and why it is here for the long run

"It really seems like Brexit has to bear a disproportionate role in explaining the inflation," Adam Posen said.

Jack Peat by Jack Peat
2022-04-29 09:00
in Politics
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Most of the UK’s soaring inflation is down to Brexit, a former Bank of England policymaker has claimed.

Adam Posen said 80 per cent of the reason why the UK will see the highest inflation of any G7 country next year, as per the latest IMF forecasts, is due to the impact of Brexit on immigration and the labour market.

He warned that Britain is showing to be less elastic than its counterparts in its post-pandemic recovery, and that it could be trapped in a high inflationary period for longer.

“You’ve seen a huge drop in migrant labour, a disruption in labour markets that everybody experienced due to Covid and reopening, but with fundamentally less elasticity… and that [Brexit] has to be a major part of it,” he told a conference at Kings College in London yesterday.

“When you look at the monetary factors, the growth factors… the UK doesn’t look that different from the euro area.

“When you look at the macro factors, it’s very difficult to see anything other than the labour market issues.

“There’s been no regulatory changes… It really seems like Brexit has to bear a disproportionate role in explaining the inflation.”

He also said Brexit has reduced UK trade openness, foreign direct investment (FDI) inflows and immigration growth.

And warned that new border frictions and higher transport costs posed new barriers to trade, with FDI inflows unlikely to return to levels reached in the 1990s and 2000s.

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