Brexit is the main reason Britain has returned to austerity, a senior economist says

Brexit is the perfect reason Britain is now facing a new round of austerity, a former Bank of England interest rate decision maker has said.

“The British economy as a whole has been permanently damaged by Brexit,” said Michael Saunders, who was an outside member of the central bank’s monetary policy committee, in an interview with Bloomberg TV.

“It has significantly reduced the productive capacity of the economy, eroded business investment,” he said, adding: “If we hadn’t had Brexit, we probably wouldn’t be talking about an austerity plan this week.”

“The need for tax increases, spending cuts would not be there, if Brexit had not reduced the productive capacity of the economy so much.”

Saunders joined the interest rate-setting committee shortly after the result of the Brexit vote in 2016 and left the role in August this year.

He said the “main legacy of that period” was weak economic output.

The Prime Minister, Rishi Sunak, and the Chancellor, Jeremy Hunt, have both warned that the Autumn Statement is likely to include spending cuts and tax rises.

Hunt, who is due to address parliament on Thursday, said last week there was a “tough road ahead”.

Saunders’ comments came as calculations compiled by Bloomberg’s index indicated that the value of US dollar stocks listed in London was being outperformed by Paris.

This means that London has lost its crown as the largest center for stock markets in Europe.

Asked about this scenario, Saunders said it was just one example of the wider damage caused by Brexit.

The fall in the pound in the wake of the Brexit referendum and in the wake of Liz Truss’ low budget was a likely factor behind the change in fortunes.

Long-term concerns about consumer resilience in the face of the cost of living crisis have also depressed the market value of medium-sized listed companies with a large proportion of their operations in the UK.

Some of the intentions behind Truss’s failed mini-budget were correct, Saunders said. The ambition to try to increase the potential of the British economy, the ceiling that can create growth without inflation, was justified.

“Liz Truss, in her brief failed premiership, got that one point right.

The tax-cutting and deregulation strategies chosen by Truss and her chancellor, Kwasi Kwarteng, however, were less sensible.

“I would put more emphasis on improving trade relations with the EU,” he said, along with investing in education and tackling chronic illness among working-age people.

His comments echo those of investors who said Britain could improve its overall productivity – growth without inflation – if it overhauled its trading relationship with the continent.

Other proposals to increase production include increasing the amount of skilled and unskilled workers by allowing more imports into the UK.

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