Brexit has fueled soaring food prices in the UK, says Bank of England politician

Brexit is contributing to a spike in food prices as the country slips into recession, a senior Bank of England official has warned.

Swati Dhingra – the newest member of the Bank’s Monetary Policy Committee (MPC), which sets interest rates – also used an interview with the Observer to suggest that the next round of central bank rate hikes should peak below 4.5%, which is the level some investors in the city are expecting. “The market is probably underestimating the damage that [level of interest rates] could cause the UK economy,” she said.

Dhingra argues that aggressive new moves to raise the cost of borrowing from the current level of 3% would risk worsening Britain’s economic downturn.

The MPC will make its next interest rate decision on Dec. 15, after imposing eight successive hikes in a year to control inflation.

Dhingra said: “That’s what I think we should all be worried about…are we going to end up lengthening and deepening the recession if the tightening continues at the current pace?”

The London School of Economics (LSE) trade expert, who repeatedly warned of Brexit damage before joining the Bank in August, said there were clear signs that the leaving the EU made the price spike worse and weighed on the economy. People “need to be aware of the economic cost,” she said.

While the invasion of Ukraine and the Covid fallout were much bigger factors in the UK’s cost of living shock, she said, it was important to highlight the damage Brexit had also caused. “I’m not going to make a statement about the political choice of this one,” she said, but added, “If it was a political choice, and it has some economic cost, then the people need to be aware of what that economic cost is.And whether that changes their minds or not is another matter.

Researchers at the LSE’s Center for Economic Performance warned last week that Brexit had added nearly £6billion to UK food bills in the two years to the end of 2021, border delays, red tape and other costs increasing the price of food by about 3% a year.

Dhingra said three-quarters of UK imports come from the EU, which means “naturally if non-tariff barriers start to set in there, we’re going to see that – not completely but show up to some extent – in food prices”.

She added: ‘No matter what type of analysis you look at, Brexit had a minimum economic impact of 2% of GDP on trade effects alone. This would be further amplified by the costs of lower business investment, lower foreign direct investment and reduced productivity.

Dhingra is the latest in a line of Bank of England figures who have broken their silence on Brexit’s negative effects on the economy.

The latest Opinium poll for the Observer shows that two-thirds of voters (66%) now think Brexit “went badly” while only 22% think it went well. Even Conservative voters are fairly evenly split, with 51% saying it went well and 39% that it went badly.

Of all voters, a total of 59% want to join the EU (34%) or have a closer relationship while staying outside the bloc (25%). Only 15% want the status quo and 14% want even less to do with the EU. Around 63% think the UK should have a relationship that would allow it to regain access to the EU single market, compared to 14% who oppose it.

In a sign that people increasingly dislike the reality of border controls, 57% support the abolition of all document and identity checks (such as passport and document checks for exports and imports) while 21% are not.

Dhingra said the pound’s fall just after the 2016 referendum was the biggest depreciation of any of the world’s four major currencies since 1944. It was, she said, “really the big news “in terms of the impact of Brexit, as the depreciation” translated into lower real wages as well as higher prices” as the cost of imports rose.

Meanwhile, uncertainty over Britain’s economic policy since the vote has contributed to “stagnation in terms of business investment”, she said. UK trade with the EU fell sharply after the end of the transition period on December 31, 2020 and Dhingra said there were signs Brexit was still having an impact. “It’s pretty much clear from the data coming in now that there’s been a downturn.”

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