‘No deal’ Brexit could add 1pc to in­fla­tion un­der WTO rules

The Sunday Telegraph - Money & Business - - Business - By Tim Wal­lace

THE prices of milk, meat and clothes could all soar if Bri­tain fails to strike a free trade deal with the EU, as tar­iffs at the bor­der would add to costs fac­ing hard-pressed fam­i­lies.

A “no deal” Brexit risks adding more than 1pc to in­fla­tion be­cause it would leave the UK us­ing World Trade Or­gan­i­sa­tion rules and taxes, ac­cord­ing to new re­search. Dairy prices could rise by 8pc, meat al­most 6pc, cloth­ing 2.4pc and ve­hi­cles 5.5pc, the study pub­lished by the Na­tional In­sti­tute of Eco­nomic and So­cial Re­search said.

Prices are cur­rently ris­ing faster than wages, harm­ing fam­i­lies’ spend­ing power. That sit­u­a­tion is fore­cast to grad­u­ally re­verse over the next year.

How­ever, trade on WTO rules in the event of failed ne­go­ti­a­tions with the EU will add ex­tra taxes on im­ported goods from March 2019 and po­ten­tially cause real wages to fall again.

Poor fam­i­lies would be the most af­fected, ac­cord­ing to the re­search car­ried out by an­a­lysts at the UK Trade Pol­icy Ob­ser­va­tory at the Univer­sity of Sus­sex and the Res­o­lu­tion Foun­da­tion.

The re­searchers said: “The over­all in­crease in price in the af­fected goods is es­ti­mated to be 2.7pc, in­creas­ing the over­all cost of liv­ing 0.8 to 1.1pc for a typ­i­cal fam­ily, with the un­em­ployed and fam­i­lies, those with chil­dren and pen­sion­ers hit hard­est. This may seem a small num­ber, but in a coun­try in which the real in­comes of or­di­nary fam­i­lies have been stag­nant for sev­eral years, a loss of this or­der would have a sig­nif­i­cant ef­fect on wel­fare.”

They be­lieve this is likely to be an un­der­es­ti­mate as it does not con­sider the ef­fect of a no deal Brexit on the cost of ser­vices, nor the im­pact on other sup­pli­ers’ costs, or the ad­min­is­tra­tive and reg­u­la­tory fric­tions as­so­ci­ated with the lack of a trade deal.

A sep­a­rate study from NIESR, mean­while, warned a pub­lic sec­tor pay hike could have knock-on ef­fects on pri­vate sec­tor pay, and then on to in­fla­tion.

If pay goes up with­out any in­crease in pro­duc­tiv­ity, it risks sim­ply adding costs into the econ­omy, push­ing up prices and adding to pres­sure on the Bank of Eng­land to raise in­ter­est rates.

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