Britain’s cost of living crisis is getting worse by brexit dragging down the country’s growth potential and costing workers hundreds of pounds a year in lost wages, new research claims.
The Resolution Foundation think tank and academics from the London School of Economic Sciences It said the average worker in Britain was now on track to suffer more than £470 in lost wages each year by 2030 after taking into account rising costs of living, compared with a stay vote in 2016.
In a report six years after the referendum, the researchers said brexit was damaging the UK’s export competitiveness on the world stage just as businesses are forced to deal with the fallout from the coronavirus pandemic and Russia’s war in Ukraine driving inflation to historic levels.
“A less open Britain is expected to be poorer and less productive,” he said.
Official figures to be released on Wednesday are expected to show a further rise in the inflation rate from 9% in April to 9.1% last month, as rising gasoline prices and rising cost of a weekly groceries put pressure on struggling families. the Bank of England has warned that the inflation rate could reach 11% in October.
As the government tried to take on rail unions on Tuesday amid the most widespread train strikes since the 1980s, ministers were forced to defend planned increases in state pensions to combat inflation while ordering wage restrictions for workers. public sector workers.
Former Conservative Chancellor Ken Clarke said Britain was on the brink of its worst economic crisis since at least 1979, telling the BBC a recession was almost inevitable. “I think it’s almost certain that we’re going to go into a recession in the next couple of years,” he said. “The Bank of England has had to start dealing with inflation, which has been allowed to get completely out of control.”
Boris Johnson has warned workers not to ask for bigger pay rises to avoid a 1970s-style “wage-price spiral” driving inflation higher, in stark contrast to October last year, when the prime minister suggested Brexit could help create a high-wage, high-productivity economy of the future.
However, the Resolution Foundation and LSE report said Brexit would weigh heavily on productivity gains in the coming years to 2030, while suggesting higher import costs added to the pain for household finances.
The research estimated that labor productivity, a key measure of economic output per hour of work, would decline by 1.3% by 2030 due to a decline in the openness of the British economy after Brexit, which is equivalent to losing a quarter of the efficiency gains achieved in the past. decade.
Ministers have argued that further pay rises for UK workers would only be sustainable if backed by productivity gains. However, with the expected decline in the efficiency of the British economy after Brexit, the academics said the inflation-adjusted wage was now set for a 1.8% drop by 2030. He said this was equivalent to the loss of £472 per worker, one year. .
The authors of the reports included LSE academic swati dhingraan outspoken critic of Brexit handpicked by Chancellor Rishi Sunak to sit on the Bank of England’s monetary policy committee that sets interest rates from August.
The report appeared to undermine the government’s argument that Brexit and its plans to level the economy to boost prosperity outside of London and the south-east, with researchers finding that the north-east of England would bear the brunt if it left the EU.
With a larger industrial sector and greater exposure to the EU market, he said the region would see a 2.7% drop in manufacturing output by 2030 compared to a scenario in which the UK voted to remain. in the EU in 2016.
Although the report found that exports to the EU had not been affected as much by Brexit under the terms of Boris Johnson’s trade deal with Brussels since early last year, it warned that overall the UK would become less open and less competitive.
Exports to the EU are expected to be 38% lower than they would have been within the EU by 2030, with a further decrease of 16% due to the loss of further integration with the EU during that period.
Torsten Bell, the executive director of the Resolution Foundation, said Brexit would make it harder to recover from the Covid pandemic and get wages up sustainably after the cost-of-living crisis.
He said: “Ten percent inflation is painful, whether you drive a train, ride a train, or have nothing to do with trains. It would always have been difficult to face it, but it is much more so for families who come with 15 years of stagnant wages.
“The sustainable route out of this is stronger wage growth, driven by productivity. Covid-19 and Brexit don’t make that any easier to achieve, but the UK has considerable economic strengths and we urgently need a renewed economic strategy to build on them.”