A former Bank of England policymaker has said that the UK economy has been “permanently damaged” by Brexit, because it reduced the country’s potential output and resulted in reduced investment into UK businesses.
In an interview on Bloomberg TV, Michael Saunders said that Jeremy Hunt’s “austerity budget” this week is a consequence of leaving the EU.
Saunders joined the rate-setting Monetary Policy Committee shortly after the Brexit referendum in 2016, and left the role in August this year.
He said: “The UK economy as a whole has been permanently damaged by Brexit. It’s reduced the economy’s potential output significantly, eroded business investment.
“If we hadn’t had Brexit, we probably wouldn’t be talking about an austerity budget this week. The need for tax rises, spending cuts wouldn’t be there if Brexit hadn’t reduce the economy’s potential output so much.”
On Sunday, Hunt denied that Brexit has made the UK poorer – despite the government’s own Office for Budget Responsibility saying it has.
The chancellor, who campaigned for Remain in the 2016 referendum, insisted the UK can make a “tremendous success” of leaving the EU.
He said it is important to consider the effects of Brexit “in the round”, and that Brexit brings both “costs” and “opportunities”.
The chairman of the OBR, Richard Hughes, last year said that Brexit would reduce the UK’s potential gross domestic product by 4% in the long term.
Saunders, who is now senior economist at Oxford Economics, added some of the ambitions behind Liz Truss’s failed mini-budget were correct in that “raising potential output is the big challenge”, but her “suggested solution to cut taxes and deregulate are wrong”.
He added: “I put the emphasis more on improving trade links with the EU, improving education, training, and also fixing this worrying rise in long-term sickness, which has been reducing the workforce so much.”
Saunders said the economy has faced a “challenging period with the Brexit vote, the depreciation of sterling, a long period of political uncertainty, the pandemic and then renewed political uncertainty”.
Last week, former Bank of England governor Mark Carney doubled down on his claims the move has taken a toll on the pound, suggesting the decision to leave the EU continues to play a part in the UK’s financial woes.