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Will Brexit Raise the Cost of Living?

Published online by Cambridge University Press:  01 January 2020

Stephen Clarke ,
Ilona Serwicka  and
L. Alan Winters
Stephen Clarke
Affiliation:
Resolution Foundation
Ilona Serwicka
Affiliation:
The UK Trade Policy Observatory (UKTPO), University of Sussex
L. Alan Winters*
Affiliation:
The UK Trade Policy Observatory (UKTPO), University of Sussex
*
Corresponding author e-mail: L.A.Winters@sussex.ac.uk
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Abstract

This paper considers two aspects of this question. First, Brexit has already induced a devaluation of sterling of around 14 per cent since June 2016, which has started to work through to consumer prices: between June 2016 and July 2017 consumer prices increased by around 2.5 per cent. Second, while it is not government policy, nor the desire of the UK public, that the outcome of negotiations is a ‘MFN Brexit’, this remains a distinct possibility. Thus we ask how the imposition of tariffs on imports from the EU will work through into consumer prices. Making very conservative assumptions, we conclude that ‘MFN Brexit’ will increase the average cost of living by around 1 per cent and increase it for 8 per cent of households by 2 per cent or more. We present results for different groups of households according to their employment and structural characteristics and show that the impact will generally be largest on unemployed, single parent and pensioner households.

Keywords

Brexitconsumptioninternational tradetariffspartial equilibrium modelF100F150F400
Type
Research Articles
Information
National Institute Economic Review , Volume 242 , November 2017 , pp. R37 - R50
Copyright
Copyright © 2017 National Institute of Economic and Social Research

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Footnotes

The authors are grateful to Michael Gasiorek and Alasdair Smith of the University of Sussex, who developed a partial equilibrium multi-market model used for this analysis; to Agnès Cimper from the OECD for sharing the OECD, Bilateral Trade in Goods by Industry and End-Use ISIC Rev.4 Conversion Key; to Fellows of UK Trade Policy Observatory (UKTPO) for comments; and to Oliver Winters for his excellent research assistance. The authors thank the anonymous referees for their comments and suggestions, which helped to improve the paper. None is responsible for the paper's remaining infelicities.

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