Brexit set to damage UK economy for foreseeable future Bank governor warns

Andrew Bailey, governor of the Bank of England, has delivered his strongest warning yet regarding the economic fallout from Brexit, stating that the repercussions on the UK economy will remain negative for the foreseeable future. Addressing fellow central bankers in Washington DC, Bailey emphasised his role as a public official to convey facts rather than personal opinions, making clear that Brexit’s long-term economic impact is a drag on growth despite some eventual adaptation.

Bailey highlighted previous calls for the UK to rebuild relations with the European Union, referencing the continued restrictions on trade since leaving the bloc. The governor noted that the UK’s economic supply has been curtailed as a consequence, acknowledging both the immediate and lasting effects these trade barriers pose to economic performance.

Chancellor Rachel Reeves also reiterated the effects of Brexit in her comments, linking the severe and lasting economic impact to current fiscal decisions. Reeves pointed to estimates made by the Office for Budget Responsibility, which four years prior suggested that the economy would be four per cent smaller outside the EU than if the country had remained. She cited Brexit’s role in tightening the financial backdrop in preparation for the upcoming budget and the subsequent focus on tax and spending deliberations.

Bailey presented the view that when an economy becomes less open, growth slows, though he suggested there will be some partial recovery over time as trade adjusts. He placed the UK’s current position within a broader context, making comparisons to protectionist moves such as tariffs imposed globally, and argued that both the UK and the international community face similar challenges in adapting to these shifts.

The governor’s speech did not stop at Brexit. He flagged the promise and potential instability brought by rapid technological change, particularly artificial intelligence. Bailey voiced both enthusiasm and caution, recognising AI as a transformative force while warning that it could exacerbate risks to financial stability, particularly in times of global supply shocks and inflated asset valuations.

Bailey concluded by illustrating the importance of strong economic growth for policy makers. He posited that if the UK’s economy had grown at a faster rate over the past 15 years, the government’s debt burden relative to gross domestic product would be much lower, thus giving politicians a wider range of choices. Slower growth, he argued, complicates these decisions and narrows the available options for managing public finances.