Brexit will have a negative impact on UK economic growth “for the foreseeable future”, the UK’s top banker has warned.
Governor of the Bank of England 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 aging population, trade restrictions – and post-Brexit economic policies.
But he added that the economy is nevertheless likely to adjust and return to balance in the long term.
“Longer term, there will be – because trade adjusts – at least a partial rebalancing,” he added.
Speaking at an international banking seminar on Saturday in Washington DC, Mr Bailey said: “For almost a decade I have been careful to say that I take no position per se on Brexit, which was a decision of the British people, and it is our duty as public officials to implement it.
“But I am asked a second question quite often: what is the impact on economic growth?
“And as a public servant, I have to answer that question.
“And the answer is that for the foreseeable future, it’s negative.”
Former Prime Minister Boris Johnson was a supporter of Brexit. Photo: Reuters
However, Mr Bailey said investments in innovation and new technologies, including AI, could help address 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,” he added.
“We’re putting our chips on general-purpose technology, and AI seems to be the next general-purpose technology, so we need to work with it.
“We must ensure that it develops appropriately and effectively. »
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Mr Bailey warned that while AI is likely to usher in a long-term productivity breakthrough, it could “in current circumstances pose a risk to financial stability due to strained market valuations”.
“It doesn’t negate the fact that AI, in my view, has the potential to solve this problem of slower growth that we have and its consequences – that it is actually the best hope that we have, and we really need to do everything we can to foster it,” he said.
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Bank of England governor’s prediction comes as chancellor Rachel Reeves is under pressure ahead of next month’s budget, with official figures showing moderate growth in August after a surprise contraction in July.
Inflation surge
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, in a revision to the previous estimate of zero growth.
In the three months to August, GDP grew by 0.3%, compared with 0.2% in the three months to July, the ONS said.
The latest figures come after those from the International Monetary Fund at the start of the week. UK inflation forecast to reach G7 highest level in 2025 and 2026.