Brexit had bigger impact on Britain’s economy than critics predicted, Reeves says

Rachel Reeves said Brexit was having a bigger impact on Britain’s economy than critics predicted, as ministers became increasingly bold in blaming the country’s poor financial situation on the decision to leave the European Union.

We’re just over a month away from the Budget, where the Chancellor is expected to announce a series of tax increases to plug a financial black hole of up to £50bn and place some of the blame on Nigel Farage and Brexit.

The chancellor told a regional investment summit in Birmingham that Britain’s exit from the EU was “unnecessarily” adding costs to businesses and said ministers were now “shamelessly rebuilding our relationship” with the bloc.

Treasury officials are bracing for the OBR to cut its forecasts for productivity growth; This decline is likely to create an extra deficit of around £20bn. This gap is expected to be filled with tax increases.

The prime minister and chancellor are reportedly planning to argue that this downgrade would not have happened if Brexit had not happened, and blame the Reform leader for leading the campaign to take Britain out of the EU.

As the Chancellor spoke in Birmingham, Bank of England governor Andrew Bailey was warning that the echoes of the 2008 financial crash were being seen in today’s economy.

Mr Bailey told a Lords committee that recent events in US private credit markets bore worrying similarities to the subprime mortgage crisis that triggered the financial crash.

He suggested the collapse of US car parts maker First Brands and car dealership Tricolor could represent the “canary in the coal mine”, adding: “Are they telling us something more fundamental about the private finance, private wealth, private credit, private equity sector, or are they telling us that there will be unique cases of things going wrong in any of these worlds?”

“I think it’s still a very open question; it’s an open question in the United States as well.”

Mr Bailey added: “I don’t want to give too much foreshadowing, but another reason why this issue is important is that, going back to before the financial crisis, when we were having this debate about subprime mortgages in the US, people were saying to us: ‘No, it’s too small to be systematic; it’s idiosyncratic.’ “This was the wrong decision.”

Speaking about the upcoming Budget at the Birmingham summit, Ms Reeves said: “I don’t think the past should define our future. That’s why we’re doing things differently.”

“That’s why we’re deregulating. That’s why we’re disrupting the planning system. That’s why we’re supporting all parts of the UK with our capital spending.

“Because I am determined to challenge these predictions [from the OBR] and let’s grow our economy faster.”

He added: “We also know – and I think the OBR will be quite honest about this – that things like austerity, capital spending cuts and Brexit have had a greater impact on our economy than was anticipated at the time.

“That is why, in my view, we have been shamelessly rebuilding our relationship with the European Union to reduce some of the costs that have been unnecessarily added to businesses since 2016 and since we formally left a few years ago.”

Inflation is expected to rise to a 21-month high on Wednesday; This will put further pressure on both the Chancellor and the Bank of England.

Economists predict Consumer Price Index (CPI) inflation will reach 4 percent in September, when the Office for National Statistics will release its final data on Wednesday. This rate is the highest level since January 2024.

It comes just weeks after Ms Reeves warned of “stiff global headwinds” hurting the British economy in a Labor Party conference speech after failing to allay fears of massive tax rises in November.

Speaking at the G30 40th annual International Banking Seminar at the weekend, Mr Bailey warned that Brexit would have a negative impact on the UK’s economic growth “for the foreseeable future”, highlighting that the UK’s potential growth rate has fallen from 2.5 per cent to 1.5 per cent over the past 15 years.

It attributed the decline to low productivity growth, an aging population and trade restrictions, including post-Brexit economic policies.

Ms Reeves’s latest comments come amid a growing trend for government ministers to become increasingly bold in their criticism of Brexit; health secretary Wes Streeting said last week he was pleased the government could now talk about the problems caused by Britain’s exit from the EU.

“I’m glad Brexit is now an issue we dare to speak its name to,” the health secretary told a panel at the Cliveden Literature Festival.

“That’s my disappointment… We were warned it would have an economic impact, and it did. And it has hit our country hard, which is why we’re having to deal with Brexit.”