Andrew Bailey, the Governor of the Bank of England, has risked the wrath of Brexiteers by urging the UK to “welcome opportunities to rebuild relations” post-Brexit.
His recommendation for closer EU ties comes as Mr Bailey backed Chancellor Rachel Reeves‘s plans to enhance business investment and stimulate economic growth in his speech at the Mansion House in the City of London last night.
He highlighted that the UK has experienced slower productivity growth since the 2008 financial crisis – and said that parting ways with the EU had “weighed” on the economy, pointing out in particular the impact of Brexit on the UK’s trade in goods.
The Bank’s chief said: “We need to encourage business investment in the UK.
“So, Chancellor, I welcome the plans you have set out in the Budget and the emphasis you’ve placed on public capital investment.”
Ms Reeves’ autumn Budget outlined £40 billion in tax rises to fund spending on schools, the NHS, transport and housing.
Turning to the effects of foreign trade and investment on productivity, Mr Bailey emphasised that he takes “no position on Brexit per se”.
However, he warned: “But I do need to point out the consequences.
“The changing trade relationship with the EU has weighed on potential supply.
“To my mind, the impact on trade appears to be more in goods than in services, which is not particularly surprising.
“But this emphasises why we must be open to, and welcome, opportunities to rebuild relations, while respecting the decision of the British people.”
He added: “The outlook is now clouded by the effects of geopolitical shocks and the wider fragmentation of the global economy.”
His remarks follow the recent victory of Donald Trump in the US presidential election, which has prompted economists to question the impact of proposed US tariffs on all imports, and come despite some including Reform UK leader Nigel Farage urging the Government to pivot away from the bloc and towards a closer relationship with the US.
Elsewhere in his speech, Mr Bailey raised concerns about the recent gaps in official unemployment data due to lower response rates to the Office for National Statistics’ (ONS) labour market survey.
He also said: “This is a significant issue – not only for monetary policy – but because it leaves us uncertain about how many people are participating in the economy. I do struggle to explain when my fellow governors ask me why the British are particularly challenged in this regard.
“The Bank, along with other key stakeholders including the Treasury, continues to work with the ONS on efforts to address these issues and improve the quality of UK labour market data.”