- Bank of England Deputy Governor Ben Broadbent argues that Brexit could lead to a “sharp step down” in the UK’s productivity growth.
- Speaking at the London School of Economics he said that a similar slowdown to the one seen after the financial crisis could crystallise after Brexit.
- Broadbent also noted that Brexit does not necessarily mean interest rates will be lowered.
LONDON — One of the Bank of England’s most senior officials has warned that Brexit could cause a deepening of the productivity crisis that has plagued the British economy in the past decade.
In a speech at the London School of Economics on Wednesday, Ben Broadbent, the bank’s Deputy Governor for Monetary Policy, said it is not “inconceivable” that Brexit could lead to a “sharp step down” in the UK’s productivity.
“We saw a sharp step down in productivity growth after the financial crisis. And I think there are things involved in Brexit that, once one digs below the macro-economic surface, could potentially do the same,” Broadbent said, adding that the crisis led to a slowing of productivity growth for a “painfully long time.”
Trade barriers between the UK and the EU once Britain leaves the bloc could be a possible cause of a further productivity growth slump, Broadbent argued.
“I’m thinking in particular of allocative effects,” he said. “If EU withdrawal results in significant new barriers to trade between the UK and its major trading partners in the rest of Europe, one plausible consequence would be a marked shift in relative demand for UK output.”
Delivering a curtailed version of the written text of his speech, Broadbent said: “The economy would probably experience less demand for the things we’ve been exporting to the EU and more for UK-based substitutes for the goods and services we’ve tended to import.
“That wouldn’t matter much if the resources for one could be seamlessly and costlessly transferred to the other. In reality, however, those resources, human as well as physical, are likely to be specialised: they’re more productive in some areas than others.”
He cited the example of specialist car factories, which cannot easily be converted to other purposes.
Broadbent’s speech was, coincidentally, delivered just hours after the Office for National Statistics released data showing that average output per hour — a key measure of productivity growth — increased at its fastest rate since 2011 in the last quarter.
During the speech, Broadbent — who earlier in November was one of seven members of the BoE’s Monetary Policy Committee to vote to increase interest rates from 0.25% to 0.5% — also said that people should not assume that Brexit will lead to low or lower interest rates.
“There’s been a persistent strain of opinion that EU withdrawal is something that necessarily means lower interest rates, or at least that it’s a reason to avoid putting them up,” Broadbent said. “If so, then I think the belief has been overdone.
“It’s not that the opposite is true. I’m certainly not going to argue here that interest rates will inevitably rise as Brexit proceeds. Apart from anything else, it isn’t the only show in town. Economic shocks come along all the time, in both directions.”
Broadbent concluded his speech by saying: “To adapt the football manager’s cliché, we can only play the economy that’s in front of us.”