Former Bank of England governor defends claim the economy has shrunk from 90% to 70% size of Germany’s since Brexit
Good morning. Last month, in an interview with the Financial Times, Mark Carney, the former governor of the Bank of England, added to the considerable evidence about the harm done by Brexit to the UK economy with a striking statistic. He told the FT:
In 2016 the British economy was 90 per cent the size of Germany’s. Now it is less than 70 per cent.
The pound has risen by almost 10 per cent against the dollar since the Truss nadir. Has the UK economy really grown by almost 10 per cent relative to the U.S. in a few weeks?
Similarly, Carney is choosing a date when the pound was abnormally high against the euro (January 2016), another one when the pound was much lower, and then saying we’ve underperformed Germany by 20 per cent.
It’s relatively rare that you get big differences between the two [exchange rates]. But you get them when you have a long standing shock to productivity in the economy and that is unfortunately what we’re getting in the UK. It was predicted that we would get that. It is coming to pass. And … it is one of the issues the Bank of England is facing.
This is what we said [before Brexit] was going to happen, which is that the exchange rate would go down, it would stay down, that would add to inflationary pressure, the economy’s capacity would go down for a period of time because of Brexit, that would add to inflationary pressure, and we would have a situation – which is the situation we have today – where the Bank of England has to raise interest rates despite the fact that the economy is going into recession.
Another way to put it is that that structural shift is in part what the government, and all of us, are dealing with in the UK. We’ve had a big hit to our productivity, our capacity in the economy … and we have to take some tough decisions in order to get it back up. And that’s one of the consequences of a decision taken a few years ago.
