Brexit partly to blame for high inflation, says Rachel Reeves

Brexit is partly to blame for high inflation in the UK, Rachel Reeves has said as she made the case for rebuilding ties with the EU.

The Chancellor said the cost of trading with Brussels was among the reasons for rising prices in Britain.

During an appearance at Riyadh’s Future Investment Initiative summit on her visit to Saudi Arabia, Ms Reeves attributed the UK’s vote to cut ties with the EU to “a rejection of open borders”.

But she said there was “public support” for the Labour Government’s move to reset relations with the bloc, including an agreement secured earlier this year aimed at cutting red tape for travellers and businesses.

“I think Brexit was a rejection of open borders, but if you look at the UK today, when we did that deal back in May with the European Union, to take down some of those barriers and indeed to introduce an ambitious youth mobility scheme, there was public support for that,” Ms Reeves said.

“And actually the sort of worry, perhaps, that we had as the Government, that reopening that can of worms of our relationship with the European Union might be quite dangerous – actually, the response has been very good.

“Businesses, especially small businesses, who face increasing red tape since we left the European Union, for workers, who are now locked out of the jobs market in Europe, there are obviously huge benefits from rebuilding some of those relations.”

Ms Reeves is preparing to deliver a challenging Budget next month in which she is widely expected to increase taxes again to plug a hole in the public finances.

Economists at the Institute for Fiscal Studies (IFS) have said she would need to raise £22 billion to restore the £10 billion of headroom she previously left herself.

The pressure has been eased slightly by better-than-expected inflation, with the Consumer Prices Index (CPI) rate remaining steady last month at 3.8%, but the Chancellor said on Tuesday that it was still too high.

“Inflation is too high in countries around the world including in the UK, and one of the reasons for that is that there’s too much cost associated with trade with our nearest neighbours and trading partners,” she told the audience.

Ms Reeves is leading a UK delegation in Saudi Arabia as the Government seeks to deepen ties with the region in a search for economic growth.

On Tuesday, she welcomed a package of two-way trade and investment deals with the country which the Treasury says is worth £6.4 billion.

The agreements include up to £5 billion in financing support from UK Export Finance for projects in Saudi Arabia, which the Government hopes will unlock contracts for British suppliers, and a new Barclays headquarters in Riyadh.

“The £6.3 billion package of new trade, procurement and investment commitments unveiled today will turbocharge business opportunity and create thousands of jobs at home – key ingredients for kickstarting economic growth and building an economy that works for, and rewards, working people,” Ms Reeves said.

Downing Street has defended the visit amid questions about Saudi Arabia’s human rights record, insisting that “economic partnership can co-exist with frank dialogue on areas of disagreement”.

“The Chancellor will be honest with Gulf counterparts over areas of divergence and cultural differences,” the Prime Minister’s official spokesman said on Monday.