At first glance, it might seem unlikely that Brexit, that most political of events motivated by highly political reasons, would impact at all on household income in the UK. This would only seem to be true at the first glance, though, because of course events of great political significance are bound to have a knock-on economic effect. Brexit has had many consequences, but among the most immediate were a decline in the value of sterling, a rise in inflation and a reduced amount of investment and productivity. The combination of these factors has, according to report produced by the National Institute of Economic and Social Research, has been that household income throughout the UK has fallen by £600, or $795. These effects are, the report continues, likely to be felt disproportionately by the poorer among the UK’s population, with the unemployed, the elderly and single-parent household being especially hard hit.
The gloomy nature of this report and its predictions for the consequence of Brexit on household income is not disputed generally, though there has been some disagreement about what the longer-term implications might be. Some analysts have predicted that the most important, long-term effects will be on inflation and also wages, and it was a concern for these matters that caused the Bank of England to announce its first-rate hike in ten tears. A result of this hike was to cause sterling to fall even further, and also to cause a surge on the London Stock Exchange, which closed one point short of it best ever finish again hopes for stronger exports brought about by the weakness of the pound. This was especially true for companies which make their profits largely in dollars or euros, such as large mining concerns. We can see here the possibly divergent outcomes for Brexit on household income in the longer term. Will high-interest rates continue to eat away at incomes? Or will a surge in exports fuel some manner of recovery?
We should also note, while we are considering these matters, that not even the Bank of England itself is certain of the consequences of Brexit. Some of its Monetary Policy committees argued that the rate hike was unnecessary since other factors would bring a natural end to the inflationary pressures affecting the economy, and, by extension, household income. They pointed to a slow-down in Gross Domestic Product and investment and also on high street spending sunk to levels that matched those from the depths of the recession. If these minority opinions in the Bank of England are correct then household income will continue to be adversely affected by the inflation that was caused by the weakness in sterling, which occurred in the aftermath of Brexit. In conclusion, it seems that we can be sure of only one thing; whether we see a continuing slowdown or a recovery furled at least in part by exports, the decision of the UK to leave the European Union will affect the amount of money coming into all British households.
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