Brexit 'partly to blame for record UK inflation'

Cyclists near the Bank of England in London. The central bank has estimated that leaving the European Union will cost the UK 3% in permanently lost national output.

Brexit is partly to blame for historically high inflation in the UK by causing labour shortages, strengthening pricing pressure among firms, and weakening the economy, Bank of England chief economist Huw Pill has said.

The central bank has estimated that leaving the European Union will cost the UK 3% in permanently lost national output within 15 years and has seen no reason to change the assumption, he added.

Speaking at a conference, Mr Pill stressed that the bank’s focus remained on returning inflation — which hit 11.1% in October — to its 2% target, adding that he expects to see headline inflation tailing-off “quite rapidly” in the second half of next year. 

However, the Bank of England's job has been complicated by Britain’s exit from the European Union, he argued. Leaving the EU is putting upward pressure on prices through three channels: Changes to migration, reduced competition, and lower trade intensity.

His comments add to questions about the UK’s new trade deal with the EU following newspaper reports that senior figures in UK government would like closer ties to reduce border frictions and ease skills shortages. It was some of the most detailed and wide-ranging remarks the BOE has made about Brexit.

Ending free movement with the EU has made it more difficult for companies to hire people from overseas, requiring them to support visas. Mr Pill said that while overall migration has not been affected, the nationality of migrant workers has shifted toward more people from outside the EU. 

Bloomberg