Europe’s energy crisis and a tight UK labour market, partly due to Brexit, have helped the British economy to underperform its peers, the Bank of England’s chief economist has said.
Britain faces twin-pronged difficulties with “both the European gas price pressures and the North America problem of people leaving the labour market”, Huw Pill said on Wednesday.
The UK economy is the only one among the G7 of wealthiest nations that has failed to recover to pre-pandemic levels while the OECD has forecast that it will perform worse than every G20 country except Russia.
This underperformance was partly due to the UK relying on gas more than other European countries, such as France, which depends more on nuclear power, Pill told the UK regions economic summit of the Institute of Chartered Accountants in England and Wales.
He added that the UK faced “a tight labour market and rising inactivity” with many older people leaving the workforce.
“The interaction between the two could be quite problematic,” he said as both elements add to inflationary pressures.
The UK’s leaving the EU has affected the economy and rising prices, said Pill, adding though that it is difficult to quantify its impact.
Brexit has hit the labour market by curtailing the flow of EU workers to the UK, while probably it has reduced the competitive pressure on domestic producers, giving them greater pricing power, he said.
Pill expects UK inflation to start slowing next year as natural gas prices stabilise.
“We are expecting to see headline inflation tail off in the second half of next year,” he said.
