Séminaire Macroéconomie

Lundi 12 octobre 2026

12h15 – 13h30

Salle 3001

Federico DI PACE (ENSAI) “Brexit and Cost of Living: A Tale of Two Phases”

Summary:

We estimate the effect of Brexit on UK consumer prices using synthetic-control methods. By 2024Q4, UK consumer prices were about 7 percentage points higher than in a synthetic no-Brexit counterfactual, accounting for more than one-quarter of the total increase in the UK price level since the referendum. The effect unfolded in two phases: a referendum or negotiation phase, consistent with sterling depreciation and gradual exchange-rate passthrough, and a post-TCA phase, consistent with the materialization of higher trade costs and non-tariff barriers.

Additional counterfactual exercises for the nominal effective exchange rate and real GDP support this interpretation, showing an immediate sterling depreciation, a more gradual CPI response, and a progressive weakening of UK activity relative to its counterfactual. Financial-market evidence and item-level CPI regressions further show that Brexit news raised short- and medium-horizon inflation expectations and that price increases were larger for good categories more exposed to imports.

Ultimately, Brexit generated a persistent increase in the UK price level, even though inflation eventually returned toward its benchmark.

Joint work: Giacomo Mangiante (Bank of Italy), Riccardo M. MASOLO (Università Cattolica del Sacro Cuore)