Bank of England Governor speaks on Brexit and its impact on the UK
Bank of England Governor Andrew Bailey says that the impacts of Brexit and leaving the European Union will continue to impact the UK for the foreseeable future.
Speaking at an international banking seminar in Washington on Saturday (18 October), Bailey said that the economy is likely to adjust and find balance again in the longer term.
“For nearly a decade I have been very careful to say that I take no position per se on Brexit, which was a decision by the people of the UK, and it is our job as public officials to implement it.
“But, if you ask me what the impact is on economic growth, I do have to answer that question as a public official. And the answer is that for the foreseeable future it is negative, but over longer time there should be a positive, albeit partial, counterbalance. Why? Because the growth model of Adam Smith is clear on this point.
“Make an economy less open and it will restrict growth, though over a longer time trade will adjust and rebuild. And, this appears to be what has happened. The same argument holds for the world economy and tariffs.”
Bailey noted that there are also deeper supply shocks at work affecting the structural parameters of economies.
“First, the negative labour supply impact of long-run population ageing. Second, the lower rate of productivity growth in many economies, the UK included, over the last fifteen years. In the UK, over that period the potential growth rate of the economy has declined from around 2½% per annum in the preceding twenty years to around 1½% since then.
:The largest contribution to that decline has come from productivity growth. It’s important to understand the impact of this change. For monetary policy it affects the speed limit at which the economy can operate. Of course, the challenge for much of the time has not been to restrain demand growth to that lower speed limit but rather the opposite,” he said.
