Brexit was ‘historic financial error’, says ex-US Treasury chief

Brexit was a “historic financial error” which has helped gasoline excessive inflation within the UK, the previous US Treasury chief Larry Summers has mentioned.

The senior American economist additionally mentioned he could be “very stunned” if Britain avoids a recession within the subsequent two years.

Mr Summers mentioned Brexit and different insurance policies imply Britain’s financial woes are “frankly extra acute than they’re in most different main international locations.”

“The UK financial coverage has been considerably flawed for some years,” he advised BBC Radio 4’s Right now programme.

“Brexit can be remembered as a historic financial error that decreased the competitiveness of the UK economic system, put downward stress on the pound and upward stress on costs, restricted import items and restricted in some methods the availability of labour,” he mentioned. “All of which contributed to greater inflation.”

Mr Summers – who suggested presidents Invoice Clinton and Barack Obama – additionally criticised the Financial institution of England, suggesting rates of interest had been saved too low for too lengthy.

He mentioned the upper ranges of inflation have been “bolstered by very ill-judged financial insurance policies that have been considerably too expansionary for too lengthy”.

The US economist mentioned the one possibility was to remain the course with base charge hikes. The Financial institution of England has raised charges 12 occasions for the reason that finish of 2021 – taking it to 4.5 per cent final month.

Mr Summers mentioned it might inevitably hit exercise and development, including that he could be “very stunned if two extra years handed with out the UK getting into into recession.”

“I believe it’s a very dramatic concern within the UK that you’ve got very substantial entrenched inflation, it’s going to be very troublesome to eradicate that entrenched inflation with no important slowdown within the economic system,” Mr Summers mentioned.

He added: “Often if you’re prescribed a course of treatment, even when the medication will not be so nice themselves and even when they presumably have some unwanted effects, it’s normally higher to take the entire course of medication … than to cease taking the drugs early and danger a recurrence of the underlying an infection.”

Mr Summers beforehand criticised the Tory authorities in the course of the turmoil of Liz Truss’ transient premiership – saying markets have been treating Britain like a growing nation the place “credibility” is misplaced.

His newest intervention comes after the common UK home value recorded its largest annual fall in practically 14 years in Might – with the property market feeling the influence of rate of interest rises.

Property values fell by 3.4 per cent yearly final month, marking the most important drop seen since July 2009, Nationwide Constructing Society mentioned.

The common home value fell by 0.1 per cent month on month to £260,736, in keeping with Nationwide’s index.

Robert Gardner, Nationwide’s chief economist, mentioned the variety of mortgages authorized for home buy in March was nonetheless round 20 per cent beneath pre-pandemic ranges.

Mr Gardner mentioned buyers’ expectations for the longer term path of the Financial institution of England base charge recommend it may peak at round 5.5 per cent, including: “Moreover, charges are additionally projected to stay greater for longer.”

He mentioned: “If maintained, that is prone to exert renewed upward stress on mortgage charges, which had been trending down after spiking within the wake of the mini-Price range in September final 12 months.”