(Bloomberg) — Brexit has left the UK economy 5.5% smaller than it would have been and added to the squeeze on public services that’s behind strikes crippling the railways and National Health Service, a prominent research group concluded.
The Center for European Reform said that slower growth is also weighing on the Treasury’s revenue and that the tax increases announced in the autumn fiscal statement wouldn’t be necessary if the UK were still in the European Union’s common market.
The findings are the latest to highlight the costs of Brexit, which are limiting Prime Minister Rishi Sunak’s effort to pull the UK economy out of a recession that may last until the next election. Sunak is holding firm in his determination to limit pay increases for nurses, ambulance drivers and railway staff, who are walking off the job in protest.
“The Brexit hit has inevitably led to tax rises, because a slower-growing economy requires higher taxation to fund public services and benefits,” John Springford, deputy director of the CER, said in the report.
The CER said departing the EU single market reduced investment by 11% and goods trade by 7% in the second quarter of 2022. That has contributed to Britain trailing behind almost all other major economies since the end of the pandemic.
His comments follow assertions from Michael Saunders, a former Bank of England policy maker, who said that without Brexit, “we probably wouldn’t be talking about an austerity budget — the need for tax rises, spending cuts wouldn’t be there.”
Springford said that had the UK economy grown in line with his model, tax revenues would have been about £40 billion higher on an annual basis, lessening the need for the £46 billion tax hikes announced by Chancellor of the Exchequer Jeremy Hunt in mid-November.
Instead, government borrowing in November was almost triple the level of a year ago and well above the rate economists had expected, according to official figures released Wednesday.
The shortfall in the first eight months of the fiscal year climbed to £105 billion, the fourth highest on record. The Office for Budget Responsibility expects the total to reach £177 billion for the full 12 months.
The CER used an algorithm that draws on the economic performance of 22 other countries that were closely matched to the UK pre-Brexit. It used this to create a hypothetical model — a ‘doppelgänger’ — to show the economic trajectory of the UK had the country not departed the EU.
Springford said that the UK had not suffered a greater economic impact from Covid than other countries, making the Brexit effect easier to distill.
“As measured by excess deaths through the pandemic, Britain ranked in mid-table globally,” he said. “So there’s little reason to believe the long-term scars on the economy are larger than in other countries, on average.”
The report said that services trade was around the same under both scenarios, indicating the smoother transition of firms within this sector.
Read more:
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Michael Saunders Says Brexit ‘Permanently Damaged’ UK Economy
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Ambulance Unions Deliberately Inflicting Harm, Says UK Minister
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(Updates with quote in final paragraph. Previous version was corrected to fix spelling of a name.)
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
