London, United Kingdom. The proponents of the Brexit have previously indicated there would be no adverse costs from a EU exit, but economists are now projecting some costs not previously disclosed.

 

After the February 2017 jump in inflation, UK households got something of a break in March as inflation stayed steady at 2.3%. This pause is sadly not proof that the pound’s Brexit-induced slump has passed through the system.

 

Easter Sunday fell in March last year, driving up air fares. This year, it’s in April, so air fares fell, offsetting increases in the price of food and clothes. Next month, inflation’s march is set to resume as this effect flips. Beyond these timing effects, the Bank of England expects annual inflation to move towards 3% by next year as the pound is expected to take a hit.

 

The Brexit supporters are fond of saying that economists don’t know what they’re talking about; they predicted a hit to the economy after a Leave vote that failed to materialise. What economists got wrong was the resilience of consumption; they assumed households would save for a rainy day. Instead, they borrowed.

 

Today, inflation is outstripping wages and interest rates, eroding the value of pay and savings. Over this year, this will weigh down on the strong consumption that has driven Britain’s overperformance, and lead to weaker GDP growth.

 

The UK economy faced the prospect of weaker growth as we adjust to what our post Brexit state is, the National Bank is unlikely to act to hold prices down. But a bad Brexit outcome, like Prime Minister Theresa May has threatened to walk away from could cause prices to rise faster, and the Bank to raise interest rates, further hitting the economy.

 

 

 

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