Andrew Bailey, Governor of the Bank of England, earlier this month Photo: Holly Adams/Bloomberg
Andrew Bailey warned against placing «too big weight» for Britain heading into recession, ahead of data expected to show the economy contracting for two quarters in a row.
The Governor of the Bank of England said he was not overly concerned about the downturn as he argued that it is likely to be superficial and short-lived.
Analysts expect official data on Thursday to show the economy contracted 0.1% in the final quarter of 2023. It would mark a second contraction in a row, meaning the UK has fallen into recession for the first time since the pandemic began.
Confirmation of a prolonged economic downturn will create a challenging situation for Rishi Sunak and the Conservatives in the Wellingborough and Kingswood by-elections. Voters head to the polls on the same day as GDP data is released.
However, Mr Bailey said the question of whether the country entered an official recession last year or not was less important. than the future path of the economy.
He told Loughborough University students: “I wouldn't put much weight on this. If we get two consecutive negative quarters — and we don't know — that will be very superficial.
“I would put more weight on the fact that the numbers we've seen since then have shown some signs of picking up. We still have a long way to go, but we are starting to see signs of recovery.»
Mr Bailey added: «In the forecasts we published two weeks ago, we have a slightly stronger outlook for growth going forward, so frankly I would put more weight on that than what we ended up with last year.» because in any case it will be very superficial. «.
The Bank's governor admitted that interest rates of 5.25% were dragging down the economy and said it was a «deliberate» attempt to tackle inflation.
< p>However, he said weak growth in investment and productivity was also holding back growth in the economy's value-added capacity. That could keep inflation high and would likely make the Bank of England cautious before it commits to cutting borrowing costs, Mr. Bailey suggested.
The comments came after Goldman analysts Sachs said the UK economy is 5% smaller than its current economy. would have happened without Brexit, and leaving the EU would have worsened the inflation crisis.
Economists James Moberly and Sven Jari Steen from the US investment bank argue that the UK has suffered «significant long-term production costs as a result of Brexit». » in a note sent to investors.
Trade, migration and business investment have suffered since the EU referendum, holding back GDP growth, they say.
Analysts write: «UK economy significantly lags behind other advanced economies.” after the EU referendum in June 2016.
“UK real GDP per capita has barely risen above pre-Covid levels and is now 4% higher than mid-2016. That compares with 8% in the eurozone and 15% in the US.
Economists said comparisons with twin Britain, which remained in the EU, suggested the economy was now 5% smaller than it would otherwise be if it remained in the block.
Goldman Sachs said the cost of living in the UK also jumped 31 percent after the vote to leave the EU. That's worse than the 27% growth seen in the US over the same period and the 24% rise in the eurozone.
Mr Moberly and Mr Jari Sten acknowledged «significant uncertainty» in their estimates , estimating the potential range for the hit to GDP to be between 4% and 8%.
The pair also noted that in some areas, such as services trade, the economy performed better than expected.
Other economists said Goldman Sachs had exaggerated the impact of leaving the EU and ignored the impact of other post-referendum changes such as rising interest rates, Covid and the energy crisis. Jonathan Portes, professor at King's College London and senior fellow at the think tank UK in a Changing Europe Centre, said the true impact of Brexit is likely to be in the region of 2-3% of GDP.
UK Institute The UK's inflation crisis was worse because the Bank of England overstimulated the economy with low interest rates, rather than because of Brexit, the Department of Economic Affairs said.
Julian Jessop, a research fellow at the IEA, said the analysis «ignores many other factors that may also have changed, including the varying impacts of shocks such as Covid and the energy crisis, as well as different policy responses in individual countries.»
He added: “These models also assume that any hit from Brexit is permanent and irreversible. Investment, in particular, should continue to recover as uncertainty resolves.
«Exports and imports should also recover as businesses adapt and new trade deals are struck.»
Goldman Sachs Brexit forecasts turned out to be wrong in the past. The bank predicted the UK would fall into recession if it left the EU during the referendum, a fate the economy ultimately avoided.
A Treasury spokesman said: “The UK grew faster than Germany.” after leaving the EU, and the IMF has said our medium-term growth prospects are better than many of our continental neighbors, including France and Germany.
“The government is making the most of Brexit freedoms to boost the economy. economy, including repealing the financial services law inherited from the EU so we can embark on reforms with a potential investment of £100 billion over ten years.»
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