Britain's referendum decision to leave the European Union (EU) has so far cost each UK household an average of £900, the governor of the Bank of England Mark Carney told a Treasury select committee in parliament today (22 May).
Mr Carney said the central bank compiled its longer term forecasts for the growth of the UK economy in May 2016, a month or so before the Brexit vote happened.
But since June 2016 when 52 per cent of votes cast were in favour of leaving the European Union, making a slim majority, the economic reality has been much worse than those forecasts anticipated.
Mr Carney quantified that under performance by saying the economy is 1-2 per cent smaller than the May 2016 forecasts expected.
According to the Bank governor, the Brexit decision means so far each household is about £900 worse, off, which he called “a lot of money”.
He acknowledged that this could reflect over optimism in terms of the central bank's original forecasts for the health and wealth of Britain, but added “some of” the underperformance is “arguably” the result of Brexit.
The governor said the Brexit vote dented confidence levels in the economy, with firms less willing to invest, and this contributed to economic weakness.
The Bank of England anticipated in its short-term forecasts that the UK economy would grow by 0.8 per cent in 2017, when it grew by 1.8 per cent.
Mr Carney said the forecast for last year was so out of sync with the subsequent reality because the global economy performed much better than expected, dragging the UK’s economic performance up with it.
For 2018, he was dismissive of the gloom that has engulfed the economy since the first quarter GDP number for 2018 was released, coming in at 0.1 per cent, below the central bank’s own forecast of 0.4 per cent.
Mr Carney said the adverse weather conditions earlier in the year knocked 0.1 or 0.2 per cent of growth from the economy. He said it is possible the growth number for the first quarter of 2018 could be revised upwards in the coming months.
He left the central bank’s estimate for growth in the second quarter of 2018 unchanged at 0.4 per cent.
Mr Carney was also eager to defend the central bank’s flagship policy of quantitative easing.
He said the policy, which involves keeping interest rates exceptionally low and pumping liquidity into the economy has caused asset price inflation, and this has benefited the top 10 per cent of society.
But he said the outcomes of the policy, which he said included staving off a deeper and longer lasting recession than happened during the financial crisis, meant unemployment stayed lower than was feared, which benefited the bottom ten per cent of the population in terms of wealth, as did the lower consumer price inflation that resulted from the policy of QE.
"Our remit is to manage consumer price inflation, not asset price inflation," he told MPs.
"If you want to change our mandate to asset price inflation you [politicians] can do that, but I wouldn't recommend it.
