LONDON — Ben Broadbent, the Bank of England’s deputy governor for monetary policy, and of its most important policymakers, summed up in one sentence the risks to the economy posed by Brexit.
Speaking on a regional visit to the Scottish city of Aberdeen, Broadbent argued that should Brexit lead to a “significant curtailment” of Britain and the EU’s trading relationship, both parties would see significant damage.
Britain, however, would be much worse off.
Towards the end of his speech, which broadly focused on the benefits of free trade and globalisation, Broadbent turned to the proverbial elephant in the room, Brexit. Here’s what he had to say (emphasis ours):
“Obviously the EU economies are highly developed, so our trade with Europe — which is extensive — is less skewed towards labour intensive goods and services than that with developing economies. Nevertheless, it has allowed for a great deal of specialisation. And if the theme of this talk is that the benefits of trade involve imports as much as they do exports, the same point applies.
Put simply, a significant curtailment of trade with Europe would force the UK to shift away from producing the things it’s been relatively good at, and therefore tends to export to the EU, and towards the things it currently imports and is relatively less good at.”
Here’s the chart of what Britain is good at:
Moving away from things like financial services, insurance, and other services focused exports, and towards the things we are “relatively less good at” like raw materials and food would have two direct impacts on the general economic welfare of the average Brit and the economy as a whole.
Broadbent argues that a move away from services exports and moving towards exporting goods would “tend to lower UK income,” while also increasing costs for businesses. Effectively a lose-lose situation.
“And, albeit on a smaller scale, relative to their (much larger) GDP, the same would be true for the EU,” Broadbent added.
“Trade really is mutually beneficial and less of it costs us all. That these truths are a couple of centuries old, and not always widely accepted, doesn’t make them any less true,” Broadbent concluded.
The European Union is by far the UK’s largest trading partner, with around half of all UK exports and imports going to or coming from the bloc. If Britain leaves the European Single Market, as expected during Brexit, it will need to negotiate a wide ranging trade deal with the EU27, something that could take years.
A deal between the EU and Canada signed in 2016, for example, took close to seven years to complete.
During his speech to the Scottish Council for Development and Industry Broadbent disappointed Bank of England watchers by failing to discuss, in any capacity, monetary policy.
The bank’s rate-setting Monetary Policy Committee is currently hugely divided on the issue of interest rates, with some on the committee eager to raise rates to combat surging inflation, and others keen to leave things as they are, citing weak economic growth right now.
Broadbent is the only serving member of the committee not to speak about monetary policy since the bank last voted on rates in June.