Covid is to blame for the inflation crisis rather than Brexit, according to Andrew Bailey, the governor of the Bank of England.

He dismissed claims that Britain leaving the European Union has helped to fuel stubbornly high inflation by worsening widespread worker shortages.

Despite a chorus of claims to the contrary from businesses, economists and politicians, Mr Bailey said the main factor behind the squeeze on labour has been workers choosing to leave the workforce after the pandemic and not returning.

“One of the striking things is that the labour force is smaller than before Covid. This is causing the position of the labour market to be very tight,” Mr Bailey told a panel of major central bankers.

“I don’t think Brexit is part of this story, but it is partly a response to Covid.”

His claim, at the European Central Bank Forum on Central Banking in Sintra, Portugal, is based on more than half a million people quitting the workforce since the pandemic.

This trend that has not been replicated in other major economies such as the EU and the United States, but has been a major factor in driving up inflation. This shrinking workforce has led to competition for staff and higher wages, he said.

However, those observing sectors such as agriculture, hospitality, transport, care and retail say Brexit has most definitely contributed to labour shortages and driving up the cost of living.

Mr Bailey’s predecessor, Mark Carney last week warned that Brexit is causing “a weaker pound, higher inflation and weaker growth.”

BrewDog CEO James Watt warned Brexit “has had a significant negative impact” on the brewing and pubs group.

Speaking to Bloomberg UK, Mr Watt said Brexit has created challenges in getting beer to customers in Europe.

“For me, it’s just massively handicapped UK companies that do business in Europe, with zero benefit at all,” he said.

“I think it’s been tragic for UK business and a lot of the economic issues the UK is facing – more inflation than other places, harder to do business, is a result of the catastrophic decision to leave the EU.”

Firms ‘missing out on talent pool’

The latest Business Barometer report published by The Open University and the British Chambers of Commerce, saysmore than two-thirds (71%) of Scottish organisations are currently experiencing skills shortages.

The report suggests that employers are missing out on the hidden talent pool and an opportunity to ‘grow your own’ talent during a time when two in five (42%) Scottish organisations say they have been prevented from filling roles due to lack of applicants.

The threat of an ageing Scottish workforce retiring without employers having the skills to replace experienced employees is another concern, with a third (33%) reporting an increase in the number of employees over the age of 50 in the last three years.

Despite the ageing workforce concern, 86% of organisations don’t have a specific initiative in place for workers over 50, while 75% of organisations don’t have any written annual plans to prepare for people exiting the business.