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Brexit The Governor of the Bank of England said, “UK economic growth will be negatively impacted for the foreseeable future.” Andrew Bailey has warned.
However, in the longer term the economy is likely to adjust and find balance again, said Mr Bailey, who was speaking at the G30 40th annual international banking seminar on Saturday.
Speaking at the event in Washington, DC, Mr Bailey highlighted the decline in the UK’s potential growth rate from 2.5% to 1.5% over the past 15 years.
He linked this to low productivity growth, a growing population and trade restrictions – including post-Brexit economic policies.
Mr Bailey said, “For almost a decade, I have been very careful to say that I take no position on Brexit, which was the decision of the people of the UK and it is our job as public officials to implement it.”
“But, I am often asked another question: What is the impact on economic growth?
“And as a public official, I have to answer that question.
“And the answer is that it’s negative for the foreseeable future.”
“But in the longer term, there will be – as trade adjusts – some at least partial rebalancing,” Mr Bailey said.
Reference to the works of the 18th century economist and philosopher Adam SmithHe continued: “Why would I give that answer? Because that’s the Smithian growth model: making the economy less open restricts growth in the long run.
“In the long run, you will find some adjustment. Business Makes adjustments, rebuilds.
“And all the evidence we have from the UK shows that is exactly what is happening.”
Mr Bailey said investment in innovation and new technologies, including AI, could help reverse the decline in productivity growth in the long run.
“If we take into account the impact of aging and trade restrictions, we are really narrowing our focus on investment,” he said.
“We are putting our chips on general purpose technology, and AI looks like the next general purpose technology, so we need to work with that.
“We need to make sure it’s appropriate and well-developed.”
Mr Bailey warned that, although AI is likely to lead to long-term productivity breakthroughs, it “could, under current circumstances, pose a risk to financial stability through extended undervaluation in the markets”.
“It doesn’t undermine the fact that AI, in my view, has the potential to exist and have consequences for us in addressing this slow growth issue – that it really is our best hope, and we really need to do everything we can to promote it,” he said.
The Bank of England governor’s forecast comes as Chancellor Rachel Reeves is under pressure ahead of next month’s budget, with official figures showing slower growth in August after a surprise contraction in July.
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, a revision to the previous estimate of no growth.
In the three months till August, gross domestic product The ONS said that increased by 0.3% compared with a rise of 0.2% in the three months to July.
The latest figures come after the International Monetary Fund (IMF) predicted earlier this week that Britain’s inflation would reach the highest level in the G7 in 2025 and 2026.