The Bank of England has issued a new Brexit warning. A reduction in trade with the European Union after leaving the bloc would be damaging to the UK by forcing it to refocus production away from its specialisations, deputy governor Ben Broadbent said in a speech in Aberdeen, Scotland on Tuesday.
It would also hurt EU growth, albeit on a much smaller scale, he said.
“Trade really is mutually beneficial and less of it costs us all,” Broadbent said. “A significant curtailment of trade with Europe would force the UK to shift away from producing the things it’s been relatively good at, and therefore tends to export to the EU, and towards the things it currently imports and is relatively less good at.”
Citing the example of movement away from services exports, he said it could both lower UK income and raise costs of food and machinery.
He also said that while globalisation has hurt some sectors of the economy and probably contributed to the decline in industrial employment in the developed world, it has brought “significant benefits” for consumers, especially those on lower incomes, by lowering prices for goods.
While Broadbent’s speech sidesteps the question of his current stance on policy after weeks of speculation that the BOE could raise rates as soon as their August meeting, its tone may suggest he’s cautious on the UK’s economic outlook after Brexit.
Three of eight voters called for an immediate 25 basis point increase at their June meeting and a fourth subsequently suggesting he might follow suit.
Even governor Mark Carney last month shifted his emphasis to indicate that policy makers may need to begin raising and will debate it in the coming months.
This is not Broadbent’s first warning to industry about the upcoming risks. In his last speech in March, he said that the current “sweet spot” in which a weaker pound boosts competitiveness and there aren’t yet any trade restrictions from Brexit, may not last.
Trade data published last week showed the deficit widened more than expected in May, casting doubt on whether 0.4 per cent economic growth can be achieved in the second quarter as currently predicted by the Board of Trade and Bloomberg’s own survey of economists.
The expansion cooled to 0.2 per cent in the prior quarter and Britain grew a “sluggish” 0.3 per cent in the three months through June, according to estimates by Price Waterhouse Coopers.