Brexit in numbers

There are many factors driving inflation, but Brexit’s hidden hand — helping to tighten the labour market and raise import costs —  makes the BoE’s decision-making harder, because the supply capacity of the economy will be smaller and less flexible, says John Springford, deputy director of the Centre for European Reform.

...While not a “slam dunk”, adds Springford, it is logical that supply-side issues, exacerbated by Brexit, will play into the UK’s ability to ease pressure on the labour market and the costs of food imports, which the Food and Drink Federation warned this week are rising fast.

“Britain lost many EU citizens in the pandemic, and many will not return because of Brexit. Importing goods has become more costly,” says Springford, noting that the BoE is assuming a loss of supply capacity of 3 per cent or so from Brexit. “That means that, as demand recovers from the pandemic, the UK will hit supply constraints more quickly than other countries — indeed it has already, as shown by shortages of food and lorry drivers.”