THE BREXIT VOTE, INFLATION AND U.K. LIVING STANDARDS

Abstract

This article studies how voting for Brexit affected living standards in the United Kingdom. Using heterogeneity in exposure to import costs across product groups, we analyze how the depreciation of sterling caused by the referendum affected consumer prices. We find that the Brexit depreciation led to higher inflation in product groups with greater import shares in consumer expenditure. Our results are consistent with complete pass-through of import costs to consumer prices and imply aggregate exchange rate pass-through of 0.29. We estimate the Brexit depreciation increased consumer prices by 2.9%, costing the average household £870 per year.