Mark Carney: People are earning 3.5% less than we estimated before the EU referendum

  • Mark Carney says Brexit has hit wages and pushed up inflation, meaning people are earning less than the Bank of England had forecast prior to Brexit referendum.
  • Pressure is expected to ease later this year.

LONDON – Bank of England Governor Mark Carney said on Wednesday that real incomes are set to be 5% below pre-referendum forecasts by the end of this year.

Appearing before the Treasury Select Committee on Wednesday, Carney said that British incomes are currently 3.5% below where the central bank had forecast them to be prior to the June 2016 vote to leave the European Union.

Economists’ forecasts have been ridiculed for their inaccuracy in many pro-Brexit circles but Carney said the figures were “to be expected” given the effects of the Brexit vote on the economy.

“We’re in a transition period or a pre-transition period is perhaps a better way to put it,” Carney told the Treasury Select Committee.

The pound sank to multi-year lows against both the euro and dollar in the wake of the vote, which has led to high inflation. Inflation rose rapidly after the vote and currently sits at 3%, well above the Bank of England’s target of 2%.

Meanwhile, investment and wage growth have failed to keep pace. Wage data also out on Wednesday shows pay packets increased by 2.5% in January – meaning people are effectively seeing real wage declines of 0.5%.

The cumulative effect is British people have less money in their pockets than the Bank had expected them to have at this point in time.

Carney said the 5% lag at the end of the year is expected to be the peak in divergence from the Bank’s pre-referendum forecasts. Inflation is predicted to ease and wage growth is expected to overtake inflation later this year.

Andy Haldane, the Bank of England’s chief economist, told the Treasury Select Committee: “It is very likely average weekly earnings growth will nudge up to have a 3 in front of it [from next month].”

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