Brexit was a “historic economic mistake” that contributed to the UK’s high inflation, former US Treasury Secretary Larry Summers said.
The senior US economist also said he would be “very surprised” if Britain avoids a recession in the next two years.
Mr Summers said Brexit and other policies mean Britain’s economic woes are “frankly more acute than most other major countries”.
“British economic policy has had substantial flaws for several years now,” he told BBC Radio 4 Today program.
“Brexit will be remembered as a historic economic failure that reduced the competitiveness of the UK economy, put downward pressure on the pound and upward pressure on prices, limited imports and in some ways limited the supply of labour,” he said. “All of this has contributed to higher inflation.”
Mr Summers – who advised Presidents Bill Clinton and Barack Obama – also criticized the Bank of England, suggesting that interest rates had been kept too low for too long.
He said the higher inflation levels were “reinforced by very ill-considered monetary policies that have been substantially too expansionary for too long.”
The US economist said the only option was to stay on track with base rate hikes. The Bank of England has raised interest rates twelve times since the end of 2021, to 4.5 percent last month.
Mr Summers said it would inevitably hit activity and growth, adding that he would be “very surprised if another two years passed without the UK falling into recession”.
Brexit was a ‘historic’ mistake that damaged the UK, says Larry Summers
(Getty)
“I think it’s a particularly dramatic concern in the UK that you have very substantial entrenched inflation, it’s going to be very difficult to eliminate that entrenched inflation without a significant slowdown in the economy,” Mr Summers said.
He added: “Usually when you are prescribed a course of medication, even if the drugs themselves are not very pleasant and even if they may have side effects, it is usually better to take the whole course of medication… than to stop. taking the drug early and risking a recurrence of the underlying infection.
Mr Summers previously criticized the Tory government during the turmoil of Liz Truss’ brief premiership – saying markets treated Britain as a developing country where “credibility” is being lost.
His latest intervention comes after average UK house prices recorded their biggest annual decline in nearly 14 years in May, with the property market feeling the impact of interest rate hikes.
Property values fell 3.4 percent a year last month, the biggest drop since July 2009, according to Nationwide Building Society.
According to the Nationwide index, the average house price fell 0.1 percent month on month to £260,736.
Robert Gardner, Nationwide’s chief economist, said the number of mortgages approved for home purchases in March was still about 20 percent below pre-pandemic levels.
Mr Gardner said investor expectations for the future path of the Bank of England’s key interest rate suggest it could peak at around 5.5 per cent, adding: “In addition, rates are also expected to remain high for longer .”
He said: “If this continues, it is likely to put renewed upward pressure on mortgage rates, which have been on a declining trend after peaking in the aftermath of the mini-budget in September last year.”
