The effect of Brexit on the UK economy will be negative “for the foreseeable future”, the UK’s most senior banker has warned.
Bank of England governor Andrew Bailey explained that a fall in the UK’s growth potential from 2.5% to 1.5% over the last 15 years was attributable to slower productivity growth, an ageing population, trade restrictions, and post-Brexit economic policies.
But he did go on to say that the economy is, however, likely to adapt and recover balance again in the longer term.
“In the longer term, there will be – because trade adjusts – some at least partial rebalancing,” he said.
Addressing an international banking seminar on 18th October in Washington DC, Mr Bailey told: “For almost ten years now, I have been extremely careful to say that I take no view per se on Brexit, which was a decision of the people of the UK, and it is our responsibility as public officials to make it happen.
“But, I very frequently get asked a second question: what’s the effect on economic growth?
“And as a public servant, I am duty-bound to respond to that question. And the response is that over the foreseeable future, it is negative.”
But Mr Bailey did say investment in new technologies and innovations, including artificial intelligence, could go some way to reversing the low productivity growth trend in the longer term.
“If we factor in the effect of ageing and trade barriers, we’re effectively betting on investment,” he said.
“We are betting our chips on general-purpose technology, and AI is the next general-purpose technology, so we must work with it.
We must make sure it develops properly and well.”
Mr Bailey cautioned that, while AI is set to lead a productivity breakthrough in the long term, it could “in the current environment, pose a risk to financial stability through extended valuations in the markets.”.
“It does not detract from the fact that AI, in my opinion, stands to be a likely solution, in dealing with this slower growth phenomenon that we have and the implications thereof – that it is indeed the best prospect we possess, and that we truly do need to do everything we can to nurture it,” he said.
The Bank of England governor’s forecast comes as Chancellor Rachel Reeves comes under pressure before next month’s budget, with official statistics showing subdued growth in August after a shock dip in July.
Inflation hike
The Office for National Statistics (ONS) reported that gross domestic product (GDP) grew by 0.1% month-on-month in August and decreased by 0.1% in July, in a revision to the initial estimate of no growth.
Over the three months to August, GDP rose 0.3% versus 0.2% growth in the three months to July, according to the ONS.
The figures follow the International Monetary Fund’s prediction earlier this week, predicting UK inflation would rise to the highest in the G7 in 2025 and 2026.
