The 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 has said.
Andrew Bailey’s Mansion House speech to investors marked 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 said. “But I do have to point out consequences.”
Mr Bailey said 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 that very important decision of the British people.”
Mr Bailey also said that the UK should not focus “just on the effects of Brexit”, warning about “geopolitical shocks and 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.
Spainâ€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 came alongside a speech by Chancellor Rachel Reeves, who talked 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,â€‌ she said.
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.
Reeves said that regulations brought in after the 2008 global financial crisis “resulted in a system which sought to eliminate risk-taking”, adding that has now “gone too far”.
She said financial services in the UK “were the crown jewel in our economy” but that “we cannot take the UK’s status as a global financial centre for granted”.
The government will publish a financial services strategy in the spring, she said.
It will focus on fintech, sustainable finance, asset management, insurance, and capital markets, she said, “laying the foundations for more private investment”.
She said sustainable investments represented “a huge opportunity”.
‘Bottom line’
Mr Bailey’s speech went on to address the wider UK economy and its lack of growth.
He described how productivity has fallen since the 2008 economic crash and has not recovered since.
He said that the UK is not alone in having this problem, which he said also affects other parts of Europe, but noted that the US has “a better story to tell”.
Mr Bailey also echoed Reeves’ concern that the UK pension system is “fragmented” and requires “heavy lifting” to fix it.
Shadow chancellor Mel Stride said the Conservatives would “study the detail of these reforms, many of which follow on from those we were pursuing in government”.
But he added that reforms “aimed at increasing growth will be significantly undermined by Labour’s budget, which sent precisely the wrong signal to investors and wealth creators”.
