Delivering his final remarks before the election today, Mark Carney steered a careful middle course.
The Bank of England’s governor avoided appearing too optimistic, so further damaging the bank’s credibility as a forecaster of financial and economic prospects, or too gloomy, which would unleash another torrent of Tory bile on the institution he heads.
Inflation would rise over the next year or two, he said, but the bank’s view is that it can “look through” this increase.
The bank is assuming a smooth Brexit process and a pickup in wage growth sufficient to maintain the economic recovery.
This is because, Carney said, the rise in inflation “entirely reflects” the impact of the 15% fall in sterling since late November 2015 on import prices, which will diminish in the next couple of years.
But the bank knows all too well that a sudden surge in inflation, particularly if it were to be coincide with a tempestuous period in the Brexit negotiations, could hit confidence and the economy hard. The best the bank can do is not rock the boat, hence the blandly upbeat tone of Carney’s comments today.
A more impartial economic projection issued earlier this week by the National Institute of Economic and Social Research (NIESR) took a longer – and less sanguine – view.
It said that current evidence suggests the UK is facing “a slowdown in consumer expenditure growth” – until recently the engine of economy recovery – and continuing “weak real income growth”.
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Per capita GDP would stagger along with increases slightly above 1% between 2016 and 2026, it said.
After a difficult decade since the 2008 banking crisis, another ten years of stagnation may not be what voters are hoping for.
This raises the spectre of Britain turning into another Japan, where growth has been limited for 20 years. But Japan has not been trying to re-engineer its global trading links while trying to escape economic stagnation, the challenge which now faces the UK.
So Jeremy Corbyn’s election strategy, judging by the leaked Labour manifesto, makes sense. Trying to win over Labour voters with a “soak the rich” appeal, a promise to maintain state pension benefits and spend more on social care could appeal in difficult times. The pain from Brexit is coming. But it will be a dull ache which, at best, will drag on for years.
Edited by Alex Spillius
UKIP lied in their anti-European campaign on issues such as the impact on EU membership on the NHS, immigration and the cost to the UK taxpayer.
Considering their medacious demagoguery, could a legal challenge be mounted to declare the referendum result unlawful?
Regards,
Paul Anderson
During the Referendum campaign and since, the pro-Brexit lobby have been fond of quoting a couple of statistics about trade patterns.
Firstly, they state that trade with non-EU countries has been increasing quicker than with EU countries and therefore our share of trade with the rest of the world, outside the EU, is increasing. This is true, but the crucial point is that the rest of the world is starting from a low base. 7 of the UK’s top 10 export markets (2015 figures) are EU countries. The loss of easy access into these markets cannot be made good over the short or medium term. We might have tripled our trade with the Solomon Islands in the same period it has been reduced with Germany (just for arguments sake), but that would not make the former a more important market. You have to focus on the total volume of export trade and what that means in jobs etc.
The other statistic bandied about by Brexiteers is that the EU exports more to the UK than vica versa, and therefore they have more to lose. They are fond of quoting the potential loss of sales to German car manufacturers. Whilst this statistic is true, the more crucial statistic is that the UK component to EU export trade is only about 9%. It is therefore easier for the EU to compensate for a loss of 9% in its exports than a loss of 44%, which is the proportion the UK exports to the EU.
The other point, which Brexiteers don’t seem to understand, is that for the EU, maintaining the integrity of the Single Market, and not allowing it to be cherry-picked, is of fundamental importance. In other words, even if they were to take a short-term economic hit, that would be much preferred than seeing the Single Market disintegrate.