Brexit will have a negative impact on the UK’s economic growth “for the foreseeable future”, the UK’s most senior banker has warned.
Bank of England governor Andrew Bailey said a decline in the UK’s potential growth rate from 2.5% to 1.5% over the past 15 years was linked to lower productivity growth, an ageing population, trade restrictions – and post-Brexit economic policies.
But he did add that the economy is, however, likely to adjust and find balance again in the longer term.
“Over the longer term, there will be – because trade adjusts – some at least partial rebalancing,” he added.
Speaking at an international banking seminar on Saturday in Washington DC, Mr Bailey said: “For nearly a decade, I have been very careful to say that I take no position per se on Brexit, which was a decision by the people of the UK, and it is our job as public officials to implement it.
“But, I quite often get asked a second question: what’s the impact on economic growth?
“And as a public official, I have to answer that question.
“And the answer is that for the foreseeable future it is negative.”
Former prime minister Boris Johnson was a champion of Brexit. Pic: Reuters
However, Mr Bailey did say investment in innovation and new technologies, including AI, may help address the decline in productivity growth in the long run.
“If we take account of the impact of ageing and trade restrictions, we’re really putting our chips on investment,” he added.
“We’re putting our chips on 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.”
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Mr Bailey warned that, although AI is likely to usher in a breakthrough in productivity long-term, it may “in the current circumstances, be a risk to financial stability through stretched valuations in the markets”.
“It doesn’t undermine the fact that AI, in my view, is likely, in addressing this slower growth issue, that we have and the consequences of it – that it is actually the best hope we have, and we really do need to do all we can to foster it,” he said.
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The Bank of England governor’s prediction comes as Chancellor Rachel Reeves is under pressure ahead of next month’s budget, with official figures showing muted growth in August following a surprise contraction in July.
Inflation surge
The Office for National Statistics (ONS) said gross domestic product (GDP) rose by 0.1% month-on-month in August and fell by 0.1% in July, in a revision to the previous estimate for no growth.
In the three months to August, GDP grew by 0.3% compared with 0.2% growth in the three months to July, the ONS said.
The latest figures come after the International Monetary Fund earlier this week forecast UK inflation was set to surge to the highest in the G7 in 2025 and 2026.
