We said it would, but we take no joy in being right about people having to live with this reality,” said Mark Carney, the former governor of the Bank of England, who had previously warned that Brexit would cause problems for the British economy.
Mark Carney headed the Bank England from 2013 to 2020. Before the Brexit referendum in 2016, he warned that leaving the European Union was the “biggest internal risk” to the UK economy. In an interview just published with The Daily Telegraph, he said he was “taking no joy” in the fact that he was right about how Brexit affected millions of households.
The economist said that as a result of the Brexit ‘shock’ interest rates likely to remain elevated for years.
– We warned, as a central banker, that Brexit would cause a negative supply shock, which would result in a weaker pound, higher inflation, which will end up with weaker economic growth, Carney said. “The central bank will have to deal with that, and that’s what’s happening,” he added, referring to the need to raise interest rates.
Fighting inflation in the UK
Carney notes that “a group of people” argued that Brexit would be “seamless, positive and driving growth”. “There was also another group that was skeptical about Brexit based on the analysis, and it turns out that they were right,” he pointed out.
“We said it would, but we take no joy in being right in seeing that people have to live in this reality,” the economist concluded.
A few days earlier, Jeremy Hunt, the Chancellor of the Exchequer, had warned that the UK had “no alternative” to raising interest rates to bring down inflation (its latest reading for April was 8.7%). Hunt said the government would be “relentless” in supporting the central bank in its efforts to fight rampant inflation and try to bring it back to the 2 percent target.
Despite the long-awaited drop in inflation to a single-digit level, the data published at the end of May showed two disturbing phenomena. Firstly, food prices continued to rise very rapidly. In April they were 19.1 percent higher. higher than a year earlier, which meant only a minimal decrease compared to March, when the annual food inflation rate was 19.2 percent. The ONS (British Statistics Office) indicated that the costs of food producers and importers have started to fall, but this has not yet translated into lower prices in stores.
The second thing is an unexpected increase in core inflation, ie excluding inflation fuel prices and food, to 6.8 percent, which is the highest level in 31 years.
In late May, The Sunday Telegraph reported that Rishi Sunak’s government was preparing plans for a deal with supermarket chains that would freeze the prices of staples such as bread and milk. The idea is modeled on a solution already existing in France and for the UK, it would mark the most serious attempt to regulate shop prices since Edward Heath, also a Conservative Prime Minister, introduced price controls in late 1972. Downing Street, however, said shops would be encouraged, not forced, to do so.
Main photo source: EPA/ANDY RAIN