Brexit: Has Already Cost a Week’s Wages

Brexit has already cost the average British worker a week’s pay in lower real wage growth and higher inflation, according to an analysis by London-based academic economists.

Price rises since the referendum have been steepest in products with high import shares, such as bread, eggs and milk as well as furniture and jewellery, according to the report by the Centre for Economic Performance (CEP) at the London School of Economics.

The report was carried out for the King’s College-based think tank “UK in a Changing Europe” and is the first detailed statistical analysis of the referendum’s effect on inflation, wages and living standards. It estimated that “depreciation and other effects of the referendum increased aggregate inflation by 1.7 percentage points”.

The cost highlighted by the report is quite separate from the expected disruption to trade, supply chains and jobs after Britain formally leaves the EU in March 2019. The findings linked rising prices to the 12% slide in the pound since the Brexit vote. Official figures show that real wages have shrunk for six straight months as inflation outpaces pay growth.

Thomas Sampson, an analyst at the think tank and LSE said the real-life impact of Brexit was felt well before Brexit actually happens in March 2019. “Even before Brexit occurs, the increase in inflation caused by the Leave vote has already hurt households,” he said. “Our results provide compelling evidence that, so far, households are paying an economic price for voting to leave the EU.”

Early Cost of Leaving

Higher prices due to Brexit were costing the average household £7.74 a week or £404 a year, which after taxes is equivalent to a £448 cut in annual pay for the average worker. In other words, the Brexit vote has cost the average worker almost one week’s wages.

Households at all income levels and in all UK regions have experienced higher inflation because of the referendum. The costs have been evenly shared across the income distribution, but not across regions. The burden of inflation has been heaviest for those in Scotland, Wales and, above all, Northern Ireland while London has been least affected. “This is because households in Northern Ireland spend relatively more on food and drink, clothing and fuel, which are high import share product groups, and relatively less on rent and sewerage, which have low import shares,” the report said.

The largest inflationary effects were felt on products such as bread and cereals; milk, cheese and eggs; coffee, tea and cocoa; beer; wine; furniture and furnishings; and jewellery, clocks and watches.

Dr Dennis Novy of the University of Warwick said the research was “not a Brexit forecast.” “It is about the costs of Brexit that have already materialised,” he said. “The results show that living standards in the UK have already suffered. Households all across the country are hit by higher inflation – without matching pay rises. The increase in inflation can be directly traced back to last year’s referendum when the sterling exchange rate dropped sharply.”

 

by Bob Graham

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