Larry Summers has said he would be “very surprised” if the UK gets through the next two years without a recession.
The former US Treasury Secretary said Brexit and post-pandemic monetary policy in the UK have exacerbated problems in the economy that are “frankly more acute than they are in most other major countries.”
“The UK economic policy has been substantially flawed for some years,” Summers told BBC Radio 4’s Today Program on Thursday.
“Brexit will be remembered as a historic economic error that reduced the competitiveness of the UK economy, put downward pressure on the pound and upward pressure on prices, limited import goods and limited in some ways the supply of labor — all of which contributed to higher inflation.”
These errors were “reinforced by very ill-judged monetary policy,” Summers added, which was “too expansionary for too long.”
Read more: Moody’s Predicts ‘Mild Recession’ For UK as Rate Hikes Bite
The UK now has little choice but to stay the course on interest rate hikes, Summers said. The BOE has hiked rates at every meeting since December 2021, taking the base rate from its pandemic low of 0.1% to 4.5%.
“Usually when you’re prescribed a course of medication, even if the drugs are not so pleasant themselves and even if they possibly have some side effects, it’s usually better to take the whole course of medicine ... than to stop taking the medicine early and risk a recurrence of the underlying infection,” Summers said.
He acknowledged higher interest rates would dampen activity, and said he would be “very surprised if two more years passed without the UK entering into recession.”
“It’s going to be very difficult to eliminate that entrenched inflation without a significant slowdown in the economy,” Summers said.
Read more:
- UK House Prices Resume Decline With Warning of Headwinds
- BOE’s Mann Says Pandemic-Era Savings Is Still Fuelling Inflation
- BOE’s Haskel Signals Support for More UK Interest Rate Hikes
