Bank of England governor says Brexit has undermined UK economy

The Bank of England governor has urged ministers to “rebuild relations” with the EU, warning that Brexit has undermined the UK’s economy.

Speaking at the Mansion House dinner in the City of London on Thursday evening, Andrew Bailey said he took no position on Brexit “per se”, but added: “I do have to point out consequences.”

He said Brexit had “weighed” on the economy, pointing out in particular the impact of Brexit on the UK’s trade in goods. “It underlines why we must be alert to and welcome opportunities to rebuild relations while respecting the decision of the British people,” he added.

Bank governors traditionally refrain from wading into contentious political issues, but Bailey’s predecessor, Mark Carney, did warn about the potential economic impacts of Brexit before the referendum in 2016.

Services exports have performed strongly since the UK left the EU, but some goods exporters, especially smaller firms, have struggled with so-called “non-tariff barriers” such as customs checks.

Keir Starmer’s government has pledged to deepen cooperation with the EU, though Brussels has made clear it is unwilling to hold wide-ranging negotiations on the trade and cooperation agreement (TCA).

Labour is opposed to re-entering the EU’s single market or customs union. Instead, the government hopes to win more modest changes such as mutual recognition of professional qualifications and a veterinary agreement that could alleviate the need for checks on food exports.

The Bank’s governor was speaking against the backdrop of Donald Trump’s threat of imposing tariffs – import taxes – on all foreign goods sold to the US.

Bailey said he was opposed to this approach, calling himself “an old-fashioned free trader at heart”.

“My point is this: amidst the important need to be alert to threats to economic security, let’s please remember the importance of openness,” he said.

Experts at the National Institute of Economic and Social Research have warned that if Trump goes ahead with his plan for a universal tariff of 10% on all imports, it could cut the UK’s growth rate next year to a sickly 0.4%.

The chancellor, Rachel Reeves, used her speech at the same event – an annual gathering of the UK’s financial sector – to praise the City, calling it the “crown jewel” of the UK’s economy, and saying post-crash regulation had “gone too far”.