Brexit caused investment in UK businesses to plateau and dealt a productivity penalty worth £29 billion, or £1,000 per household, a Bank of England policymaker has said.
Jonathan Haskel, an external member of the Bank’s Monetary Policy Committee (MPC), said in an interview that a wave of investment was “stopped in its tracks” in 2016 following the Brexit vote.
Mr Haskel was asked by Matthew C Klein, the founder of web newsletter The Overshoot, what he thinks about Britain being an “extreme outlier” when it comes to facing a slowdown in productivity.
He said: “Yes, we suffered much more. A bit of that is that we have this larger financial sector. But I think it really goes back to Brexit.
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“If you look in the period up to 2016, it’s true that we had a bigger slowdown in productivity up to 2016, but we had a lot of investment. We had a big boom between 2012-ish to 2016.
“But then investment just plateaued from 2016, and we dropped to the bottom of G7 countries.”
Mr Haskel went on: “I say we were at the top of the wave of investment in 2012. If we pushed that out a little bit, then our slowdown may not have looked quite so bad, but it was stopped in its tracks in 2016.”
The influential economist explained that the Brexit referendum had an impact on productivity as a result of the reduction in trade, with the UK opting to leave the European Union (EU) and consequently secure new trade deals.
Mr Haskel referred to a calculation to show what the UK economy could have looked like if investment had carried on growing at the “pre-referendum” rate, compared with what it actually is.
He described the hit as the productivity penalty, which amounts to about 1.3% of gross domestic product (GDP).
“That 1.3% of GDP is about £29 billion, or roughly £1,000 per household,” he said.
Mr Haskel, who has consistently voted in favour of hiking up interest rates at MPC meetings, also told The Overshoot that inactivity in the labour market is a distinctly “British thing”.
“We have a big increase in the number of people who are inactive – the fall in the number of people who are active in the labour market, which is quite a British thing,” he said.
“Inactivity behaviour here looks very different to other countries: we’ve had a rise while other countries have had a fall.”
Only in Columbia, Chile, Switzerland and Iceland have inactivity rates increased more than in the UK, Mr Haskel said.
The impact of ill health and more people in their 50s choosing to retire after the pandemic and not return to work are believed to be key factors driving down activity in the UK’s workforce.
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