Brexit has made inflation harder to control in Britain and left the country exposed to “self-sustaining” price rises, according to the Bank of England’s chief economist, Huw Pill.

In remarks that will resonate with the small and medium-sized firms still wrestling with stubborn cost pressures, Pill said policymakers had found it tougher to rein in the pace of price rises since the 2016 vote to leave the European Union.

Speaking at a conference in Uzbekistan, Pill argued that the structural overhaul of Britain’s labour and goods markets brought about by Brexit had reshaped the economy in ways the Bank was “still learning about” and “still digesting”.

“My own view is that those changes have led us to a structure which is more prone to this sort of self-sustaining momentum in pricing, which can lead to greater inflation persistence,” he said.

Pill pointed to two forces in particular: the new trade barriers thrown up between Britain and its largest trading partner, and the end of the free movement of workers, which has drained the pool of available labour in sectors that long leaned on European staff.

The numbers lend weight to the argument. UK inflation has averaged roughly 3.6 per cent since the referendum in June 2016, and has dipped below the Bank’s 2 per cent target in only one month over the past five years. Over the same period, German inflation has averaged 2.5 per cent and French inflation 1.9 per cent, according to the Bank of England’s own analysis.

The picture is not entirely one-sided. Britain formally left the EU in 2020, just before the pandemic shut down much of the economy and triggered a wave of state support that fuelled demand. Inflation then surged to a 41-year high of 11.1 per cent in October 2022, as savings amassed during lockdown were unleashed at the very moment Russia’s invasion of Ukraine sent energy prices soaring. Even so, that peak sat above the 8.8 per cent reached in Germany and the 6.3 per cent seen in France.

Pill’s intervention lands only weeks after Andrew Bailey, the Bank’s governor, said the institution had been proved right in its long-standing warnings that Brexit would damage the economy. Bailey has urged the UK to rebuild its trade ties with the EU, arguing that shrinking the markets Britain trades with inevitably weighs on growth.

“I think the level of activity and growth in the economy has been lower,” Bailey said. “If you reduce the size of the markets that we trade with, so we reduce our export markets, then that does tend to have a negative impact on growth. It tends to have a negative impact on productivity and the size of the market.”

The comments build on a growing body of evidence. Company-level data has suggested that Brexit has knocked around 6 per cent off the UK economy, a figure that chimes with earlier estimates that Brexit dealt a 5 per cent blow to output.

The labour squeeze hits SMEs hardest

Britain marked 10 years since the referendum last week, and the anniversary has prompted a fresh round of stocktaking. In its own assessment, Goldman Sachs concluded that businesses most reliant on EU workers “have experienced the largest increases in vacancy rates since the Covid pandemic” as the new migration system bit into the available workforce.

For owner-managers, that is more than an academic point. James Moberly, an economist at the bank, said the shortages could feed directly into inflation as companies forced to pay more to recruit pass those costs on to customers through higher prices, a dynamic that lands squarely on the bottom line of smaller firms with thinner margins.

“Going forward, reduced cyclicality of migration flows compared with the pre-Brexit period could lead to greater volatility in labour market tightness and domestic inflationary pressures,” Moberly said. He added that Brexit had “materially weighed on Britain’s economic performance relative to other advanced economies”.

For Britain’s 5.5 million SMEs, the warning from Threadneedle Street carries a practical sting. If inflation is now structurally harder to shift, interest rates may stay higher for longer, keeping the cost of borrowing, recruitment and everyday trading elevated well into the second half of the decade.

Jamie Young

Jamie is Senior Reporter at Business Matters, bringing over a decade of experience in UK SME business reporting.
Jamie holds a degree in Business Administration and regularly participates in industry conferences and workshops.

When not reporting on the latest business developments, Jamie is passionate about mentoring up-and-coming journalists and entrepreneurs to inspire the next generation of business leaders.

Rising employment costs are forcing thousands of owner-managers to absorb the bill themselves, squeezing profits, pensions and hiring alike

Surging employment costs and a run of above-inflation increases in the minimum wage have left many small business owners unable to pay themselves a living wage, one of the country’s leading business groups has warned.

The Federation of Small Businesses (FSB) cautioned that thousands of owner-managers are being drawn into a downward spiral of higher costs and shrinking profits that threatens their ability to draw even the most basic income from their firms.

In a submission to the Low Pay Commission (LPC), the independent body that advises ministers on the minimum wage, the FSB said bosses were increasingly forced to cover rising pay and compliance costs out of their own pockets. The pressure, it argued, is fast becoming a permanent feature of the labour market, pushing more proprietors either to close their doors or to make choices that will damage their own retirement.

“It is becoming a major structural issue within small firms where the costs of employment, including the national living wage, employer National Insurance contributions and auto-enrolment, make it harder for a small business owner to make sufficient profit to pay themselves a living wage, let alone to fund a pension,” the submission said.

“This has a negative double effect: fewer roles created and sustained in small businesses, but also fewer small businesses that are economically viable. In effect, this is leading to fewer jobs and fewer small firms.”

The warning chimes with the FSB’s own recent survey data, which showed rising wage costs dragging small business confidence into negative territory as labour became the single biggest barrier to growth. The federation said just 11 per cent of its members would be unaffected by another above-inflation rise in the wage floor.

The national living wage currently requires workers aged 21 and over to be paid £12.71 an hour, while those aged 18 to 20 must receive £10.85. The LPC signalled in March that it was minded to recommend an increase of up to 5 per cent for the national living wage in 2027, with a central estimate of £13.18 representing an above-inflation rise of 3.7 per cent.

The FSB was not alone in sounding the alarm. The Institute of Directors (IoD) used its own submission to urge the LPC to direct the Government to rethink Labour’s manifesto pledge to pay all workers, regardless of age, the same minimum wage. It blamed the recent surge in youth unemployment squarely on policies that have deterred employers from taking on less experienced staff.

“If the Government is serious about tackling the youth employment crisis, it must address the crisis in the cost of youth employment,” the IoD warned.

The institute argued that Labour’s pledge to scrap the youth rate of the minimum wage risked making matters worse, and called on ministers to postpone further increases until employment among young people had recovered to pre-pandemic levels. The minimum wage for younger workers has risen by more than a quarter under Labour, a move that economists, including policymakers at the Bank of England, say has deepened a youth unemployment crisis that has seen the number of young people not in education, employment or training climb towards one million.

A survey by the Recruitment and Employment Confederation found that a quarter of employers would scale back hiring if the wage floor rose to the levels under discussion, which it said pointed to “a potential tipping point for employment decisions”.

“These dynamics are having tangible labour market consequences,” it said. “Entry-level opportunities are being constrained, working hours are being reduced in some sectors, and the impacts are falling disproportionately on young people and labour market entrants, particularly those already at risk of becoming or remaining not in education, employment or training.”

The IoD urged Labour to move away from a scheme that pays employers up to £3,000 to take on young people who are out of work, and instead to pivot towards broader measures aimed at bringing down the overall cost of employment. “Small, one-off incentives tied to significant amounts of bureaucracy will not come close to offsetting the increased costs of employing people brought about by recent Government employment policy,” it said.

Lower minimum wage rates for younger workers have existed since the system was introduced by Labour in 1999. The IoD pressed the LPC and the Government to reconsider plans to scrap what it had described as “discriminatory” age bands until employment among under-24s rises back above the 60 per cent level seen before lockdown.

“The LPC should recommend that the Government pauses the implementation of the equalisation of the youth and main minimum wage rates,” it said. “As described above, the equalisation is having a damaging impact on youth employment prospects at a time when the number of Neets has exceeded one million.” The concern is consistent with wider forecasts that youth unemployment could climb to 17.8 per cent by 2027 as artificial intelligence and tax rises bite into entry-level hiring.

For its part, the FSB called on Labour to increase automatically a small business tax break in line with future minimum wage rises, ensuring that firms with fewer than four employees are left no worse off.

A government spokesman said Labour’s minimum and living wage increases had left Britain’s lowest earners £900 better off.

Jamie Young

Jamie is Senior Reporter at Business Matters, bringing over a decade of experience in UK SME business reporting.
Jamie holds a degree in Business Administration and regularly participates in industry conferences and workshops.

When not reporting on the latest business developments, Jamie is passionate about mentoring up-and-coming journalists and entrepreneurs to inspire the next generation of business leaders.

Joe has worked in the financial services industry since 1992 in various capacities, including Operations Manager, Compliance Manager, Registered Representative and Portfolio Manager. From 1997 to 2006, when he founded Alhambra Investment Management, Mr. Calhoun was a Director of Investments at Oppenheimer & Co. Mr. Calhoun holds the Series 63 (Uniform Securities Agent State Law) and 65 (Uniform Investment Advisor Law) securities licenses. He has previously taken and passed the Series 7 (General Securities Representative) and Series 9/10 (General Securities Sales Supervisor) securities exams.
Joe proudly served in the U.S. Navy’s nuclear submarine service for 8 years (1983-1990) and was awarded several commendations including the Navy Achievement Medal in 1987. He studied engineering at the University of South Carolina and is a graduate of the U.S. Navy’s Nuclear Propulsion School. He founded Alhambra Investment Management as a registered investment advisory to address the needs of the individual investor. His market commentaries are widely read and published at various online outlets. He has appeared on Larry Kudlow’s program on CNBC and various radio programs. He is also an editor of the website RealClearMarkets.com.

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If approved at the AGM, the dividend will be paid to eligible shareholders within 30 days. The company has also set Friday, August 14, 2026 as the record date for determining eligibility for the payout.

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HAL is India’s premier aerospace and defence company. It operates under the administrative control of the Ministry of Defence and plays a crucial role in the design, development, manufacture, repair, and overhaul of aircraft, helicopters, engines, and related systems.

The company is a key supplier to the Indian Armed Forces and has been at the forefront of India’s defence indigenisation efforts.

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Over the past three months, HAL shares have gained 20.63%, while rising 0.63% in the last one month. However, the stock is down 11.62% over the past year and 17.77% over the last two years.
In Q4 results, the company reported a consolidated net profit of Rs 4,196 crore for the March-ended quarter, marking a 6% year-on-year (YoY) rise from the Rs 3,977 crore profit reported in the year-ago periodThe defence major’s revenue from operations rose 2% YoY to Rs 13,942 crore in Q4FY26, from Rs 13,700 crore reported in the corresponding quarter of the previous financial year.

For the full financial year 2026, the company reported a nearly 9% rise in net profit to Rs 9,116 crore, compared with Rs 8,364 crore in FY25. The company’s revenue grew around 7% to Rs 33,089 crore in FY26 from Rs 30,981 crore in the previous financial year.

The PSU’s net profit more than doubled from Rs 1,867 crore reported in the third quarter of FY26. Revenue from operations surged over 81% quarter-on-quarter (QoQ) from Rs 7,699 crore in the December quarter.

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Hindustan Aeronautics Limited’s earnings per share (EPS) rose nearly 6% to Rs 62.57 during the fourth quarter and more than 9% to Rs 135.71 for the financial year ended March 31, 2026. Its overall net worth, meanwhile, jumped 17% to Rs 40,862 crore in FY26.

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