Bailey warns of long-lasting growth drag from Brexit

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The Governor of the Bank of England has warned that Brexit will have a negative impact on the UK economy for the “foreseeable future”, adding that the economy will eventually adapt to Brexit.

Speaking in Washington DC, Andrew Bailey said he had “taken no position per se” on Brexit, but added that restricted access to trade resulting from the UK’s exit from the bloc would continue to hamper growth.

“If you ask me what impact this will have on economic growth, I have to answer that question as a public official,” Bailey said. “The answer is that it is negative for the foreseeable future, but over a longer period there must be a positive, albeit partial, balance.”

Bailey was speaking after Rachel Reeves, the chancellor, this week pointed to “severe and long-lasting” impacts from Brexit, as the Treasury prepares for a tough ruling from the Office for Budget Responsibility on growth forecasts in next month’s budget.

Labor has tried to lower barriers with Brussels in areas such as youth mobility, food trade and agriculture, but analysts have downplayed any economic gains from those efforts.

Bailey was speaking a week after the IMF and World Bank meetings in which central bankers discussed the impact of rising barriers to trade around the world in a period of weak growth and high public debt.

In the same committee, European Central Bank president Christine Lagarde criticized the punitive tariffs imposed by the Trump administration on the European Union.

The US President imposed 15 percent tariffs on almost all imports in an effort to eliminate the trade surplus of the trading bloc with the largest economy in the world.

Trump believes that the trade surplus has allowed EU exporters to profit at the expense of their American counterparts and American jobs.

But Lagarde warned that the US’s “coercive trade measures” would not correct long-standing instability in its relationship with the rest of the world, which economists have called “external imbalances.”

Lagarde added that the EU’s trade surplus with other economies – including the UK – was much larger than with the United States.

While she said the EU is a “major player in trade,” she added that the bloc is “not a major source and contributor to global imbalances.” [to these imbalances] “It has been steadily declining.”

Kristalina Georgieva, Executive Director of the International Monetary Fund, added that although US barriers have increased, retaliation by other countries has been relatively limited.

Bailey pointed to Brexit as one of the factors limiting the UK’s growth potential, including an aging population and Trump’s trade policies.

“Adam Smith’s model of growth is clear on this point,” he said. “If we make the economy less open it will constrain growth, although trade will adjust and rebuild over a longer period. This appears to be what has happened. The same argument applies to the global economy and tariffs.”

Bailey said the potential growth rate of the UK economy had fallen to about 1.5 percent over the past 15 years, compared to about 2.5 percent annually in the previous 20 years.

He was speaking at a conference of the G30, a body of funders and academics.

Bailey also stressed the need to boost investment in areas including artificial intelligence to address constraints to growth.

He said there was “nothing inconsistent” in the belief that AI is the next big technology, while worrying that it “may down the road challenge financial stability through extended valuations, especially in an environment of larger global supply shocks.”