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Andrew Bailey, Governor of the Bank of England, has expressed his concerns about the impact of Brexit on the UK economy and the latest developments in the UK pandemic.
The Brexit agreement between the UK and the EU has been celebrated as a success by both sides, and has effectively averted the imposition of tariffs – from January – on imported goods.
The synthesis found by London and Brussels, however, still has some grey areas that will force the British and European negotiators to continue the tug-of-war on the negotiating table: above all, as is well known, the chapter on financial services, deliberately left in suspense in order to conclude the agreement by the end of the transition period.
This factor, together with the multiple implications of the Brexit dossier, is fuelling the concerns of the Bank of England governor, Andrew Bailey, who in the central bank’s latest report offered further insights into the likely impact on the British economy of the divorce with the EU.
Not even the developments on the pandemic front have helped to reassure, with the UK now forced into a third lockdown to curb the record spread of the virus.
The handshake between London and Brussels could cost the British economy – in the long term – four points of GDP. This is the alarm launched by the Bank of England, the highest British authority in the banking sector, on the morning of today, Thursday 7 January.
But between forecasts and reality, the governor of the central bank stressed, there is the trend of the epidemiological curve in the country, now grappling with the resurgence of the virus: the long-term outlook on the UK economy depends on the ability of the British authorities to curb the ongoing health emergency.
Also of concern is the stalemate on financial services, with the EU and the UK still unable to agree on the regulation of euro-denominated derivatives in the post-Brexit season.
In this regard, the EU is waiting for more information on London’s future financial regulation, but the BoE governor – as part of the broader discussion on the process of equivalence of European and British rules – urged the UK authorities not to accept a deal “at any price”.
On the other hand, the impact of Brexit on the employment rate in the financial sector is milder, with the Bank of England pointing out that so far only 5,000 positions have been transferred to the European Union.
This reasoning inevitably merges with the evolution of the pandemic on British soil, where a new variant of the virus has forced Downing Street to tighten the system of restrictions: almost 61,000 infections in the last 24 hours, while the country has sunk for the third time into lockdown.
According to observers, the worsening of the health crisis is attributable to the gradual relaxation of anti-Covid measures towards the end of the year and the general relaxation of the population in the wake of the distribution of Pfizer and AstraZeneca immunisers.
Already in December, retail sales in the UK slowed down, according to the Bank of England report, with UK businesses tracking a 16.1% loss in their fourth-quarter turnover, up from the figure recorded in November (-15.3%).
The data, collected by the central bank in the period between 4 and 18 December on a sample of 2,933 British companies, now risks being exposed to the progressive deterioration of the health situation in the country, where only activities considered essential are allowed to open.
UK: not just Brexit, pandemic, record-breaking recession. Also shaking the nation’s economic system is a generation gap that needs to be bridged. What does it mean?
The UK is gearing up for a 2021 full of crucial economic challenges: from the now operational Brexit to managing new trade relationships to fighting a pandemic more aggressive than ever.
Worsened by record levels of public debt and a deep recession, London will have to deal with an additional alarm: growing inequality.
The latter is a global issue that has returned to the forefront because of the harmful pandemic effects. More poor and unemployed people are spreading across nations, even the most developed ones.
The UK is one of them: for Johnson and Sunak, the alarm has sounded about the generation gap and social imbalances.
Chancellor Rishi Sunak should use tax and spending policies to tackle a widening economic gap between old and young in the UK, according to a group of experts led by Nobel laureate Angus Deaton.
According to the study published by the Institute for Fiscal Studies, the generation gap that opened up after the financial crisis has been exacerbated by the pandemic and will be exacerbated if the Bank of England again loosens monetary policy as planned.
This assessment lays bare the crucial challenge Sunak faces as he considers a plan to help those most affected by the pandemic and to tackle the largest peacetime budget deficit.
The report states:
“The programme of quantitative easing and low interest rates in the aftermath of the financial crisis has led, perhaps inadvertently, to a redistribution of wealth towards the oldest and richest and away from the youngest and poorest…It is important that fiscal policy recognises these distributional effects and leans against them, rather than doubling down on them as has happened over the past decade.”
The analysis found a worrying rise in inequality in society and called on the Government to provide targeted support. This is the trend, accelerated by the pandemic:
mortality rates from Covid-19 almost double in the most deprived areas compared to the least deprived in the early months of the pandemic;
“In the face of such evidence, and in the positive outlook thanks to vaccines, to really get rid of the dramatic effects of the pandemic it is imperative to think about policies … that focus on those who have suffered the most”: this is the message from Deaton, who is chairing the study.
A clear warning against the danger of more inequality and social disparity that applies to the UK as well as the world’s major powers.