Ben Broadbent: The economic costs of restricting trade - the experience of the UK

Speech by Mr Ben Broadbent, Deputy Governor for Monetary Policy of the Bank of England, at "Structural Shifts in the Global Economy", an economic policy symposium sponsored by the Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming, 26 August 2023.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Introduction and summary

Good morning. I haven't been to this conference for a number of years and it's a great pleasure to be back.

Quite a bit has happened in the interim. We have been through a terrible pandemic. Just as the world was overcoming the worst of Covid-19, Russia invaded Ukraine. We are now witnessing the most serious armed conflict on the European continent since the Second World War.

These events have taken a terrible human toll. They've also had significant impacts on the world economy.

Despite their differing origins, the economic consequences of these shocks have quite a bit in common. The pandemic disrupted the supply of traded goods, much of it from Asia. This contributed to a material rise in their relative price and a reduction in the real incomes of goods importers.

Similarly, Russia's invasion of Ukraine was accompanied by a sharp reduction in the supplies of energy and food from that region and a further hit to the wellbeing of those reliant on them.

The resulting real-income squeeze has led to rapid inflation in domestic wages and prices in these importing countries, through the normal mechanism of "real income resistance". In both cases it's also led to calls for policymakers actively to reduce dependence on these imports – whether goods from parts of East Asia or gas from Russia – in order to "de-risk" trade.