Brexit impact on UK economy will be negative for foreseeable future, Bailey warns
Bank of England governor Andrew Bailey has warned that Brexit will have a negative impact on Britain’s economic growth “for the foreseeable future”.
But Mr Bailey, speaking at the G30’s 40th annual International Banking Seminar on Saturday, added that the economy would likely adjust and find balance again in the long term.
At the event in Washington DC, Mr Bailey highlighted that the UK’s potential growth rate has fallen from 2.5% to 1.5% in the last 15 years.
He attributed this to low productivity growth, an aging population and trade restrictions, including post-Brexit economic policies.
“For nearly a decade I have been very careful to say that I take no position on Brexit, which is the decision of the people of the United Kingdom and that it is our duty as public servants to implement it,” Mr Bailey said.
“But I am often asked a second question: What is the impact on economic growth?
“As a public official, I have to answer this question.
“And the answer is that it is negative for the foreseeable future.”
“But in the longer term there will be at least a partial rebalancing as trade adjusts,” Mr Bailey added.
Citing the work of 18th-century economist and philosopher Adam Smith, he continued: “Why do I give this answer? Because that’s Smith’s growth model: Making an economy less open restricts growth in the long run.”
“You’re going to get some adjustment over the long term. Trade is adjusting, rebuilding.
“And all the evidence we have from the UK is that that is exactly what happened.”
Mr Bailey said investment in innovation and new technologies, including artificial intelligence, could help offset the decline in productivity growth in the long term.
“If we take into account the impact of aging and trade restrictions, we are really investing our chips,” he said.
“We’re putting our chips in general-purpose technology, and AI looks like the next general-purpose technology, so we need to work with it.
“We need to ensure that it develops appropriately and well.”
Mr Bailey warned that although AI was likely to usher in a breakthrough in productivity in the long term, it “could present a risk to financial stability due to stretched valuations in markets in current circumstances”.
“In my view, that doesn’t undermine the fact that AI is likely to address this problem of slow growth that we have and the implications of that; in fact, that’s the best hope we have, and we really need to do what we can to improve that,” he said.
The Bank of England governor’s prediction comes as Chancellor Rachel Reeves is under pressure ahead of next month’s Budget; official figures show that growth slowed in August after the surprise contraction in July.
The Office for National Statistics (ONS) said gross domestic product (GDP) rose 0.1% month-on-month in August and fell 0.1% in July, revising the previous forecast of no growth.
The ONS stated that GDP increased by 0.2 per cent in the three months to August and by 0.2 per cent in the three months to July.
The latest figures come after the International Monetary Fund (IMF) predicted earlier this week that inflation in the UK will rise to the highest level in the G7 in 2025 and 2026.
