Britain’s cost of living crisis is being made worse by Brexit which is reducing the country’s growth potential and costing workers hundreds of pounds a year in lost wages, new research has found.
The Resolution Foundation think tank and academics from the London School of Economics have said the average worker in Britain is now on course to suffer more than £470 in lost wages every year by 2030 after the taking into account the rise in the cost of living, compared to a vote remaining in 2016.
In a report six years after the referendum, researchers said Brexit was hurting Britain’s export competitiveness on the global stage, just as businesses are being forced to deal with the fallout from the coronavirus pandemic and war of Russia in Ukraine, pushing inflation to historic highs.
“A less open Britain should be poorer and less productive,” he said.
Official figures due on Wednesday are expected to show a further rise in the inflation rate from 9% in April to 9.1% last month, as soaring petrol prices and the rise in the cost of a weekly shop rise pressure on struggling families. The Bank of England has warned that the inflation rate could reach 11% by October.
As the government tried to confront railway unions on Tuesday amid the most widespread rail strikes since the 1980s, ministers were forced to defend planned anti-inflation increases to the state pension while at the same time ordering wage moderation for public sector workers.
Former Conservative Chancellor Ken Clarke said Britain was in the grip of the worst economic crises since at least 1979, telling the BBC a recession was almost inevitable. “We will, I think, almost certainly go into a recession in the next couple of years,” he said. “The Bank of England had to start fighting inflation, which was allowed to spiral completely out of control.”
Boris Johnson has warned workers against demanding bigger pay rises to avoid a 1970s-style ‘wage price spiral’ leading to higher inflation, unlike in October of last year, when the Prime Minister suggested that Brexit could be the productivity economy of the future.
However, the Resolution Foundation and LSE report says Brexit will weigh heavily on productivity gains over the next few years to 2030, while suggesting that rising import costs will worsen household finances. .
The research estimated that labor productivity – a key measure of economic output per hour worked – would be reduced by 1.3% by 2030 due to a decline in the openness of the UK economy after the Brexit, which means losing a quarter of the efficiency gains made over the past decade.
Ministers argued that bigger pay rises for UK workers would only be sustainable if they were backed by productivity gains. However, with the expected decline in the efficiency of the UK economy after Brexit, academics said the inflation-adjusted wage was now set to fall by 1.8% by 2030. He said that this equated to the loss of £472 per worker, per year. .
The report’s authors included LSE academic Swati Dhingra, an outspoken Brexit critic chosen by Chancellor Rishi Sunak to serve on the Bank of England’s monetary policy committee from August.
The report appeared to undermine the Government’s argument that Brexit and its plans to level the economy to boost prosperity outside London and the South East, with researchers finding the North East of England would be hardest hit by leaving the EU.
With a larger industrial sector and greater exposure to the EU market, he said the region would see a 2.7% decline in manufacturing output by 2030 compared to a scenario in which the UK Uni reportedly voted to remain in the EU in 2016.
Although the report revealed that exports to the EU had not been hit as hard by Brexit under Boris Johnson’s trade deal with Brussels since the start of last year, it warned that in 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 decline of 16% due to the abandonment of integration with the EU during this period.
Torsten Bell, chief executive of the Resolution Foundation, said Brexit would make it harder to recover from the Covid pandemic and sustainably raise wages after the cost of living crisis.
He said: “Ten percent inflation is painful whether you’re driving a train, traveling by train or having nothing to do with trains. It would always have been difficult to deal with, but it much more for families who come with 15 years of stagnant wages.
“The sustainable path out is stronger, productivity-driven wage growth. Covid-19 and Brexit do not make this any easier to achieve, but the UK has huge economic strengths and we urgently need a renewed economic strategy that builds on them.