Expert: Brexit Explains Most of UK Inflation
Most of the UK’s inflation problems are due to the UK’s decision to leave the European Union. At least that’s what the former Bank of England policy officer, Adam Posen, says.
The economist currently heads the prominent research group Peterson Institute for International Economics in Washington.
The International Monetary Fund (IMF) expects UK inflation to remain elevated for longer. According to Posen, 80 percent of this has to do with Brexit and especially with the effect of the British departure on immigration.
“We see a huge gap between the inflation rate in the US and the inflation rate in Europe. The United Kingdom falls between,” Posen said at a conference organized by Changing Europe’s research group. “You’ve seen a huge drop in migrant workers. Looking at the macro factors, it’s tough to see anything other than the labour market problems. So it really looks like Brexit has to play a disproportionate role in explaining inflation.”
Posen said in an interview that he would raise interest rates faster than the Bank of England is now doing to curb high inflation. He also sees merit in previous calls from British politicians to lower import duties on food in order to keep the cost of living lower. He referred to research by the Peterson Institute on the US, which shows that the lower tariffs that Donald Trump introduced as president will reduce inflation by about 1.3 percent.
Brexit has created more obstacles at the borders. Furthermore, transport costs have risen, and Britain must negotiate its own trade agreements independently of the EU. In addition, according to him, international investors seem less eager to invest in the United Kingdom.