Finish this sentence for me: Brexit is...? According to the first few results from Google, the answer is:
- working
- brexit
- a process, not an event
- a success
- finished
- good
What about inflationary? In most advanced economies, inflation remains well above central banks’ targets, as countries grapple with the twin supply shocks of Covid-19 and Russia’s invasion of Ukraine. But only one nation also recently left the world’s largest trading bloc.
Of course, the global economy is large and complex and it is therefore difficult to draw firm conclusions. But the fact is that at 7.9 per cent, UK inflation is the highest in the G7 – even after June’s larger-than-expected decline. Meanwhile core inflation, which strips out more volatile prices such as fuel, sits at 6.9 per cent, the highest since 1992.
All other things being equal, Brexit ought to be inflationary. The UK economy is a less trade intensive one than before we left the single market and customs union. Indeed, trade as a share of GDP fell 12 per cent between 2019 and 2022, two and a half times greater than any other G7 economy, according to the Office for Budget Responsibility. Meanwhile, the end of free movement of people has exacerbated labour shortages, placing upward pressure on wages.
So it is instructive that the government has acknowledged that Britain’s departure from the EU – and in particular the hard Brexit pursued by Boris Johnson and enthusiastically endorsed by Rishi Sunak – is inflationary. Not in so many words – you don’t hear me conceding Novak Djokovic is a better tennis player than Roger Federer – but close enough.
As first reported by George Parker and Peter Foster in the Financial Times, ministers are set to confirm further delays to post-Brexit border controls on fresh food products coming from the EU over worries that additional checks will fuel inflation. (For clarity, UK exports to the EU have been subject to full checks since January 2020.)
In normal times, this would be painful enough. When food inflation is running at 14.9 per cent and one in UK 20 adults report running out of food and being unable to afford to buy more at some point in the past two weeks, it is unimaginable.
Breaking the back of inflation is the government’s top economic priority, though mostly a job for the Bank of England, which today raised interest for the 14th successive time. Therefore, it makes sense for ministers to postpone any action that might exacerbate inflationary pressures. But it does reveal an uncomfortable truth – Brexit, and in particular the brand of Brexit the UK has adopted – is inflationary.
Prior to leaving the EU, Tony Blair was fond of saying that Britain faced a choice: between a painful Brexit or a pointless one. That is, a hard Brexit in which we erected significant barriers to trade, or a soft one in which we remained in the single market. But Blair was wrong: we have both.
Painful, because Brexit has reduced the long-term growth potential of the UK economy and contributed to inflation. Pointless because we haven’t even the strength or incentive to implement border checks on EU goods or diverge in many other ways. Indeed only this week, ministers ditched plans for a post-Brexit British equivalent to Brussels’ ‘CE’ safety mark, after businesses warned new rules would add to their costs.
In the battle between sovereignty and prosperity, Britain has somehow ended up with neither.
In the comment pages, Jonathan Prynn predicts Canary Wharf is big enough to ride out HSBC’s exit. Sue Webster reveals she was a teenage screaming banshee but that exhibiting her diaries has been cathartic. While Kate Rice says the Lizzo lawsuit is making fans lose their heads.
And finally, ‘contemporary and on-trend’ — Rishi Sunak’s tailor defends his cropped slim-fit suits.
