Bank of England Governor Andrew Bailey said in a speech yesterday, Thursday, that Britain must defend free trade and rebuild relations with the European Union as the global economy disintegrates.
Bailey stressed that a commitment to open trade is vital to boost weak investment in Britain and restore productivity growth, along with freeing capital from companies and pension funds, which is what Finance Minister Rachel Reeves has planned.
He said Brexit – which was supported by voters in 2016 and took effect in early 2020 – had contributed to weakening British trade flows and weighed on the potential productive capacity of its economy.
“As a public official, I don’t take a position on Brexit per se. That’s important. But I have to point out the consequences,” Bailey explained in his annual Mansion House address to financial services leaders in London. “We must be attentive and welcome opportunities to rebuild relations while respecting the decision of the British people.”
While the new Labor government has ruled out rejoining the EU’s single market or customs union, Prime Minister Keir Starmer has said he wants to improve trade and diplomatic ties with the bloc.
Finance Minister Rachel Reeves, speaking just before Bailey at the same event, said Britain needed to “reset” its relationship with the EU and that she was also looking to work closely with Trump to boost trade ties.
Bailey said Britain needed to look at the broader picture of growth, not just the impact of Brexit.
While Bailey did not directly refer to the US election in his speech, policymakers around the world are still digesting Trump’s victory and the possibility of double-digit tariffs on goods imported by the United States.
The Governor of the Bank of England said this would have far-reaching implications for global trade and inflation.
He continued: “The picture has now become cloudy due to the impact of geopolitical shocks and the broader fragmentation of the global economy.”
“Amid the important need for vigilance against threats to economic security, let us remember the importance of openness,” Bailey said. “We must do what we reasonably can to maintain the safe openness of the economy.”
Earlier on Thursday, US economist Katherine Mann said the Bank of England should keep interest rates steady until upside risks to inflation – including those posed by Trump’s election – dissipate.
Bailey said he supported Finance Minister Reeves’ plans to boost public investment announced in the Budget two weeks ago.
But he agrees with the government’s budget forecaster that budget measures alone will not lift Britain’s potential long-term economic growth much.
“This will have to be accompanied by stronger business investment… and this business investment will depend on quite a few things including good public infrastructure,” he said.
