Bank's economist reveals negative impact of Brexit

Bank's economist reveals negative impact of Brexit

The long-term normal rate of GDP growth the UK can expect to achieve will be less than it has been in the past, partly as a result of Brexit, according to Bank of England chief economist Andy Haldane.

As FTAdviser previously reported, Mr Haldane was speaking to the Treasury select committee yesterday (21 February).

During the course of his evidence he said the long-term average growth rate for the UK in the years ahead would be around 1.5 per cent, with 0.5 per cent of this coming from an increase in the population, and 1 per cent coming from improved productivity.

Other movements upwards or downwards in the level of GDP are a reflection of the temporary economic cycle and the policies pursued by central banks and governments at a particular time, he claimed.

Mr Haldane said the 0.5 per cent of growth to come from a higher population is about half the contribution to the growth number that has historically come from this area.

The 1 per cent contribution from productivity gains is also around half the historic level, but around twice the level it has been for the past decade.

Data released this morning (22 February) by the Office for National Statistics showed that net migration to the UK from other European Union countries was 75,000 in the past 12 months, the lowest level for five years.

Those figures should be seen in the context of a much better outlook for the EU economy than has been the case in recent years, but reducing net immigration is an aim of many of those who campaigned in favour of the UK leaving the EU.

In its inflation report on 8 February, the Bank of England stated: "Since the EU referendum, however, levels of long-term migration have fallen and the ONS projects a further gradual fall in coming years.

"All else equal, that will reduce the pace of growth in UK labour supply slightly."

The central bank noted that each additional immigrant worker in an economy tends to have a positive impact on the level of productivity in the economy as a whole, because migrant workers from within the EU are more likely to have degrees than the general population of the UK, and because degree level jobs tend to contribute more to productivity than non-degree level jobs.

So on both of the components that make up the UK's long-term growth rate, population growth and productivity growth, Mr Haldane said the exit of the UK from the EU has a negative impact.

Mr Haldane has previously said the Bank of England's inability to forecast the short-term impact of Brexit on the economy was "it's Michael Fish moment", a reference to the BBC weather forecaster who was spectacularly wrong in ruling out the storm of 1987.  

With regard to the shorter term impact, Jim O'Neill, former chief economist at Goldman Sachs, Conservative government minister and supporter of the Remain campaign during the EU referendum campaign, has said he is embarrassed to have been wrong on the outlook for the economy.