Getty ImagesThe UK must “rebuild relations” with the EU “while respecting the decision of the British people” who voted to leave in 2016, the Bank of England’s governor will say later.
Andrew Bailey’s Mansion House speech to investors will mark some of his strongest comments yet on Brexit, saying one of its consequences has been weaker trade.
He has previously avoided commenting on the topic because of the Bank’s independence from Westminster politics.
“As a public official, I take no position on Brexit per se,” he will say. “But I do have to point out consequences.”
Mr Bailey will say the changed relationship with the EU has “weighed” on the economy.
“The impact on trade seems to be more in goods than services… But it underlines why we must be alert to and welcome opportunities to rebuild relations while respecting the decision of the British people.”
Mr Bailey will also say the UK should not focus “just on the effects of Brexit”, warning about the “broader fragmentation of the global economy”.
His Brexit comments go much further than he previously has on the topic. Last November, he said the decision had “led to a reduction in the openness of the UK economy”.
Assessing the impact of the UK’s decision to leave the EU on the economy has been tricky given the multiple economic shocks in recent years.
The Office for Budget Responsibility and other independent analysts estimate the economy will take a 4% hit over 15 years as a result.
Goods trade, especially in food and farm exports, has been especially hit by the imposition of new trade barriers. Trade in services, such as banking, has done better than expected, however.
The government remains opposed to rejoining the EU, but Prime Minister Keir Starmer and some EU politicians have said there could be a better relationship.
Spain’s Finance Minister Carlos Cuerpo told the BBC: “We need to be positive here and optimistic that a better deal can be actually closed on that front.”
A UK government spokesperson said: “We are committed to resetting our relationship with our European partners… and improving our trade and investment relationship.”
Vicky Pyce, chief economic advisor to the Centre for Economics & Business Research, said Mr Bailey may have made his comments due to the election of Donald Trump as US president.
Trump made a repeated campaign promise to levy a 20% tax on all imports of goods into the US, and a 60% tariff on Chinese imports.
Ms Pryce said if that were to happen “it is actually quite questionable whether the UK could have a special relationship with the US when it still trades quite substantially with Europe”.
Mr Bailey’s Mansion House address will come alongside a speech by Chancellor Rachel Reeves, who will talk about her plans to shake up the UK pension system in a bid for growth.
She wants council pension pots to be merged so they can make bigger investments to generate higher returns, a move criticised as risky by some.
“The UK has been regulating for risk, but not regulating for growth,” she will say.
The annual event comes as the government also faces criticism from businesses for holding back growth through tax raises, which Reeves has said are necessary to “properly fund” public services.
‘Bottom line’
Mr Bailey’s speech will go on to address the wider UK economy and its lack of growth.
“Bottom line, it’s not a good story,” he will say, describing how productivity has fallen since the 2008 economic crash and has not recovered since.
He will explain that the UK is not alone in having this problem, which he says also affects other parts of Europe, but notes that the US has “a better story to tell”.
Mr Bailey will also echo Reeves’ concern that the UK pension system is “fragmented” and requires “heavy lifting” to fix it.
Former Chancellor Jeremy Hunt has said there was “much to welcome” in Reeves’ suggested reforms, though shadow chancellor Mel Stride has added that Conservatives will be “looking closely at the detail”.
