Carney Says Brexit Has Cost Economy `Tens of Billions' of Pounds

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(Bloomberg) -- Bank of England Governor Mark Carney said Brexit has already cost the the U.K. economy billions of pounds in lost output and it’s not benefiting yet from a global pickup.

Asked in a BBC radio interview to quantify the damage from Brexit, he said the economy is now about 1 percentage point smaller than it would have been had the 2016 European Union referendum gone the other way, and that the gap will widen to about 2 percentage points by the end of the year.

“What it works out to is tens of billions of pounds lower economic activity,” he said. “The question then is how do we make that up over time by growing above potential.”

Based on the estimated size of the economy at the end of 2017, the lost output would amount to as much as 40 billion pounds ($57 billion).

That’s equivalent to two “Brexit buses,” a reference to the 350 million pounds a week -- or almost 20 billion pounds a year -- that Leave campaigners said would be available for spending after Britain stopped contributing to the EU budget. The Times newspaper reported this week that Carney was asked at an event at the World Economic Forum in Davos to measure lost output in “Brexit buses.”

EU Relationship

In the BBC interview, Carney said the U.K. could “recouple” with the global economy, which is enjoying its fastest growth since the financial crisis. For now, companies are holding back on investment plans as they wait to see what Britain’s trade relationships will be after it leaves the EU.

A good deal with the bloc would help, he said, though he wouldn’t say if this implied “modest” Brexit changes. That phrase was used by Chancellor of the Exchequer Philip Hammond in a speech on Thursday, angering euroskeptic lawmakers in the Conservative Party and earning him a slap down from Prime Minister Theresa May’s office.

“The deeper the relationship with Europe, the deeper the relationship with the rest of the world -- and the two are obviously connected, it’s a complicated set up negotiations -- the better it’s going to be over time for the U.K. economy,” Carney said.

Asked about recent IMF forecasts, where every major economy except Britain was upgraded, Carney noted that the U.K. was an “outlier” in the report.

“What’s happening is the Brexit effect in the short term,” he said. “The stress is on the short term.”

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