British households are more than £900 worse off after the vote to leave the EU, according to the governor of the Bank of England, in comments that risk a renewed confrontation with senior Brexit supporters in the government.
Comparing the current state of household finances with forecasts made by the Bank before the referendum, prepared on the basis of a remain vote, Mark Carney told MPs that household incomes were now significantly lower than expected.
“Real household incomes are about £900 per household lower than we forecast in May of 2016, which is a lot of money,” he said, referring to the total lost growth for incomes in the two years since the 2016 referendum.
Speaking in front of the Treasury select committee of MPs, Carney also said the economy was 2% smaller than forecast before the EU referendum, despite the strength of the global economy and the Bank’s emergency cut in interest rates after the Brexit vote.
That was “a reasonable difference” to forecasts for the economy made in May 2016, he added.
The governor’s comments provoked angry reactions from Brexit supporters, who have previously been critical of Carney and his forecasting record.
Jacob Rees-Mogg told MailOnline Carney was “crying wolf”, while Boris Johnson, speaking on a visit to Argentina, insisted Brexit had not damaged the interests of the country.
“I believe that the chancellor of the exchequer has given a definitive answer on this matter, which is that it is not the case that Brexit has damaged the interests of this country,” Johnson said.
However, opponents of Brexit seized on Carney’s remarks as evidence of the pain being inflicted on households by Britain’s EU exit. Vince Cable, the Lib Dem leader, said the cost of Brexit was “cutting into people’s everyday lives”.
Tim Roache, the general secretary of the GMB union, said: “Being £900 worse off might not seem a lot to Tory cabinet ministers but for many people it pays for their family’s summer holiday.”
Although Carney admitted it was difficult to say with certainty that Brexit was the sole reason for lower household incomes, he suggested the referendum outcome played a significant role. Previous analysis by economists has put the potential cost for each British household of voting to leave the EU at £600 a year.
Consumers have come under significant financial pressure from rising inflation since the Brexit vote, as the immediate drop in the value of the pound pushed up the cost of importing food and fuel to Britain. At the same time wage growth has remained weak despite the lowest levels of unemployment since the mid-70s.
But after a year of falling living standards, earnings finally began to rise above inflation in February, signalling the worst of the pressure on household finances could be coming to an end. Still, average pay remains below its pre-financial crisis peak once inflation is taken into account.
Carney said investment spending by companies, which could drive up the productivity of firms and help to boost wages, had been weaker than expected since the Brexit vote. The strength of the world economy and availability of finance from the banking sector should have helped encourage companies to invest more, boosting the economy, he said.
“Over the course of the last year and a half, there has been an impact [from Brexit] relative to what we would’ve expected – even with some pretty good tailwinds at the back of this economy,” he said.
Despite the warnings over the short-term consequences of the vote for British households, Michael Saunders, a member of the Bank’s monetary policy committee, told MPs the likely long-run negative impact of Brexit would be “modest”.
Pointing out that the economy did not weaken as much as the Bank forecast before the referendum, he said: “It is likely that that long-run narrative is probably still intact. Obviously that’s something we will learn more about over time.”
