Mark Carney said ongoing inflation ‘is what we said was going to happen’ (Picture: Getty)

Brexit is one of the main reasons Britain has been sucked into a prolonged tide of inflation, according to the previous chief of the Bank of England.

Mark Carney, who oversaw the Bank during the referendum and repeatedly warned leaving the EU would damage the economy, said the ongoing onslaught of rising prices and stagnant wages is ‘what we said was going to happen’.

Mr Carney acknowledged that other countries face similar difficulties due to spiralling global energy prices and the aftereffects of Covid.

But the UK faces the ‘rare’ and ‘very difficult reality’ of having to sharply hike interest rates while on the cusp of its longest recession in 100 ydoears, he told BBC Radio 4’s Today Programme on Friday.

Some of Mr Carney’s claims are hotly contested by other economists, including prominent experts who warned against Brexit.

Either way, however, mortgage payments and investment loans will now become more expensive at a time when the Bank would normally make them cheaper to fuel economic growth.

Here’s a breakdown of the key arguments made by the former governor, who left for an investment banking role in 2020.

Energy prices

Mr Carney singled out the war in Ukraine as a leading cause of inflation, echoing the widely held view among experts that Putin’s restriction of gas supplies to Europe has pumped up energy prices.Although the UK does not rely heavily on Russia for gas imports, energy costs here are closely linked to wholesale prices in Europe.Rising energy prices have also ‘slowed down the rate of pace that the economy can grow’, both in the UK and other countries around the world, he added.

Research has found leaving the EU has weakened UK productivity (Picture: Anadolu)

Covid

The pandemic has also weakened the UK’s ‘capacity to grow’ by ‘changing the labour market’, Mr Carney continued. While many businesses have bounced back since the end of restrictions, economists widely agree the economy has been left with ‘scars’ such as a £50 billion hole in public finances.Recent official data shows the retail and transport sectors are 15% and 10% smaller than they were at the end of 2019, whereas hospitality and the arts have grown overall.Many industries which suffered huge job losses have struggled to hire replacements in the aftermath. Some economists warned this could fuel inflation as employers would have to pay higher wages, and therefore charge more for their goods and services, but the jury’s out on the extent to which this has actually happened.

The pandemic has left ‘permanent scars’ on prodcutivity and areas like retail (Picture: Alamy)

Brexit

Leaving the EU has also ‘slowed the pace at which the economy can grow’ by causing a ‘long-standing shock to productivity’, Mr Carney argued.Research by the Resolution Foundation think-tank in June found that Brexit has led to an 8% fall in Britain’s trade openness, which in turn is reducing productivity and workers’ wages.It predicted that productivity will fall by 1.3% by the end of the decade due to changes in trading rules alone, with output in the fishing industry likely to fall a whopping 30%.The notion that Brexit has significantly fuelled inflation is not widely shared by economists, and there has been no major research behind it. But weaker wage growth is known to make it harder for families to afford rising prices.Speaking of the producitvity fall, Mr Carney said: ‘It was predicted that we would get that, it’s coming to pass.’

Mr Carney’s successor Andrew Bailey has been forced to sharply raise interest rates (Picture: PA)

The former governor did not give specifics on the scale of Brexit’s effect, although doubled down on claims he made last month on the matter.

He told the FT he wouldn’t give a ‘value judgment’ on the matter but had simply this to say: ‘In 2016 the British economy was 90% the size of Germany’s. Now it is less than 70%.’

This was described as ‘nonsense’ and a ‘zombie statistic’ by Jonathan Portes, a former chief economists at two government departments, who says the UK’s economic performance since the referendum has been ‘disappointing but not disastrous’.

Mr Portes and other experts accused Mr Carney of mixing up similar but uncomparable statistics on exchange rates and GDP, a measure of the size of the economy.

Industries like fishing have taken a beating but experts say it’s still too early to assess the overall scale of Brexit’s impact (Picture: Getty)

The relative gap between the UK and Germany could be said to be true of each country’s ability to buy goods on the world stage, but families and business’ purchasing power (how much they can afford of what they normally buy) have both grown by similar amounts since 2016.

Challenged on the point on Friday, Mr Carney accepted there was a difference in the statistics but insisted his choice is ‘the one that really matters’.

The former Governor added: ‘This is what we said was going to happen, which is that the exchange rate would go down, it would stay down, that would add to inflationary pressure.

‘The economy is operating at a level above its capacity. That’s adding to the inflationary pressures that we’re getting from the war in Ukraine and elsewhere, and the Bank needs to slow the economy, which is why it’s raising interest rates.

‘Its judgement is that if it does too much of that it will slow the economy to too great an extent and then we will be out of balance on the other side. So they have a very tricky balancing act.’

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Mark Carney said the combination of low wage growth and rising prices is ‘what we said was going to happen’ before the referendum.