BOE Governor Bailey Warns Brexit Will Bring Big Economic Losses
BOE Governor Bailey Warns Brexit Will Bring Big Economic Losses
(Bloomberg) -- Bank of England Governor Andrew Bailey risked reigniting the politically charged debate over Brexit by predicting that the trade deal struck with the European Union could end up costing the U.K. economy the equivalent of more than 80 billion pounds ($109 billion).
In his first public comments since Britain completed its withdrawal from the bloc on Dec. 31, Bailey endorsed warnings from the Office for Budget Responsibility, the fiscal watchdog, that gross domestic product will be as much as 4% lower in the long term than it would be had the country remained in the EU.
The remarks are likely to anger Brexit supporters, who hailed Prime Minister Boris Johnson’s last-gasp deal as a triumph that lays the foundations for a robust recovery from the coronavirus. But critics say the agreement will burden business with red tape and leaves the nation’s enormous services sector, including banks, at a significant disadvantage.
Speaking to the House of Commons Treasury Committee, Bailey said the deal was broadly in line with what the BOE forecast in November, when central bank officials estimated a 2% hit to the economy in three years. However, those costs will increase over time, as the OBR also projected, he said.
“You’re right that the OBR, and indeed our model if you let it play out -- because it affects a very long run, because of the way in which the real side of the economy adjusts -- that something around 3 to 4% for this sort of deal is probably right,” he said.
What happens in practice will depend on how much disruption Britain experiences in the next few weeks, and then how quickly the economy adjusts to the new trading arrangements, he said.
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