Reverse Brexit for sake of your economy, OECD tells UK leaders
Britain has been told to keep monetary policy loose in order to pump cash into its battered economy in a move that will keep sterling cheap but raise living costs, as the country braces for Brexit.
And reversing Brexit - by changing government or a new referendum vote - would give a "significant" boost to the country's economic growth, the Paris-based Organisation for Co-operation and Development (OECD) said.
In a report that focused heavily on poor productivity in the UK as well as the decision to exit the European Union, the OECD said Britain should ramp up public investment if the economy stalls.
The OECD said it was assuming a "least favourable" Brexit outcome, in which Britain leaves the EU in 2019 without a trade deal or a smooth transition, reverting to World Trade Organisation rules instead.
That warning was echoed in Dublin yesterday by the Central Bank's deputy governor, Ed Sibley.
In his first major speech since being appointed, the regulator said a hard Brexit was now a realistic prospect and that firms here needed to do more to prepare for this.
"It is entirely plausible that there will be a 'hard' Brexit, with no transition period. Much more work needs to be done to prepare for this plausible scenario, particularly in the insurance sector," he said
He warned there would be "direct and material impacts" for existing financial services firms operating in Ireland, especially those who have direct exposure to the UK.
The Central Bank's most senior and experienced experts are now working on Brexit-related areas, he said, including to authorise and supervise new entrants or changes to existing firms.
For Ireland, the "loss of the UK voice" at the European level in relation to regulation is "particularly negative," he said.
Mr Sibley was speaking at the Financial Services Ireland (FSI) Financial Services Summit in Dublin.
Meanwhile, the OECD repeated its forecast from September that Britain's economy looks likely to expand by just 1pc next year, slowing from growth of around 1.6pc this year.
The OECD assumed a "least favorable" Brexit outcome, in which Britain leaves the EU in 2019 without a trade deal or a smooth transition, reverting to World Trade Organisation rules instead.
The OECD said a transition agreement - something favoured by Ireland and which Britain wants to talk about now with the EU - would limit the damage from Brexit.
"(Brexit) has raised uncertainty and dented business investment, compounding the productivity challenge," it said.
The OECD noted a fall in net migration to Britain since last year's Brexit vote. If that intensified, it could reduce the labour force and productivity growth, given that migrants tend to possess higher skills, it said.
"Rapidly concluding negotiations to guarantee the rights of EU citizens is a priority to sustain labour supply and ensure further progress in living standards," the report said.
Responding to the OECD report, Britain's finance ministry said increasing productivity was already a priority, citing its £23bn fund for infrastructure, research and development and housing.
While most economists expect the Bank of England to raise interest rates in November, the OECD said it should "look through" - or ignore - the boost to inflation from the weak pound.
"Monetary policy should remain supportive amidst the ongoing slowdown in the economy as the negative effects of Brexit continue to materialise," the OECD said.
The OECD also warned that high household debt, coupled with stagnant incomes, was posing a "major financial stability risk".