Brexit had an even bigger impact on Britain’s economy than critics predicted, Rachel Reeves has said, as ministers have become increasingly bold in blaming the dire state of the nation’s finances on the decision to leave the European Union.
It comes with just over a month to go until the Budget, where the chancellor is expected to announce a swathe of tax rises to fill a financial black hole of up to £50bn and pin a portion of the blame on Nigel Farage and Brexit.
The chancellor told a regional investment summit in Birmingham that the UK’s exit from the EU “needlessly” added costs to businesses, saying ministers are now “unashamedly rebuilding our relations” with the bloc.
Treasury officials are bracing for the OBR to lower its forecasts for productivity growth – a downgrade that is likely to create an extra shortfall of around £20bn. The shortfall is expected to be filled by a swathe of tax rises.
The PM and chancellor are reportedly planning to argue that this downgrade would not have happened were it not for Brexit, pinning the blame on the Reform leader for leading the campaign to take Britain out of the EU.
As the chancellor was speaking in Birmingham, Bank of England governor Andrew Bailey was warning that echoes of the 2008 financial crash are being seen in today’s economy.
Mr Bailey told a Lord committee that recent events in US private credit markets have worrying similarities with the subprime mortgage crisis that triggered the financial crash.
He suggested the collapse of US car parts maker First Brands and auto dealership Tricolor could represent “the canary in the coal mine”, adding: “Are they telling us something more fundamental about the private finance, private asset, private credit, private equity sector, or are they telling us that in any of these worlds there will be idiosyncratic cases that go wrong?
“I think that is still a very open question; it’s an open question in the US.”
Mr Bailey added: “I don’t want to sound too foreboding, but the added reason this question is important is if you go back to before the financial crisis when we were having this debate about subprime mortgages in the US, people were telling us: ‘No it’s too small to be systemic; it’s idiosyncratic.’ That was the wrong call.”
Speaking about the upcoming Budget at the Birmingham summit, Ms Reeves said: “I don’t think that the past has to define our future. That’s why we are doing things differently.
“That’s why we are deregulating. It’s why we’re overturning the planning system. It’s why we are backing all regions of the UK with the capital spending that we’re putting in.
“Because I’m determined to defy those projections [from the OBR] and grow our economy quicker.”
She added: “We also know – and the OBR, I think, is going to be pretty frank about this – that things like austerity, the cuts to capital spending and Brexit, have had a bigger impact on our economy than even was projected back then.
“That’s why we are unashamedly rebuilding our relations with the European Union to reduce some of those costs that were, in my view, needlessly added to businesses since 2016 and since we formally left a few years ago.”
On Wednesday, inflation is expected to increase to its highest level for 21 months – piling even more pressure on both the chancellor and the Bank of England.
Economists have predicted Consumer Prices Index (CPI) inflation will have hit 4 per cent in September, when the Office for National Statistics reveals its latest data on Wednesday – the highest level since January 2024.
It comes just weeks after Ms Reeves used her Labour conference speech to warn of “harsh global headwinds” battering Britain’s economy, as she failed to dispel fears over major tax rises in November.
And speaking at the G30 40th annual International Banking Seminar over the weekend, Mr Bailey warned that Brexit will have a negative impact on the UK’s economic growth “for the foreseeable future”, highlighting a decline in the UK’s potential growth rate from 2.5 per cent to 1.5 per cent over the past 15 years.
He linked the decline to lower productivity growth, an ageing population and trade restrictions – including post-Brexit economic policies.
Ms Reeves’ latest comments come amid a growing trend of government ministers becoming more bold in their criticism of Brexit, with health secretary Wes Streeting last week saying he is delighted that the government can now speak about the problems caused by Britain’s exit from the EU.
“I’m glad that Brexit is a problem whose name we now dare speak.” the health secretary said on a panel at the Cliveden Literary Festival.
“This has been my frustration about it ... We were warned it was going to have an economic impact, and it has. And it’s hit our country hard, so we’re having to deal with Brexit.”
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