Brexit contributed to weakening of UK trade flows

15/11/2024 6:07

        Britain should stand up for free
        trade and rebuild ties with the European Union as the global
        economy fragments, Bank of England Governor Andrew Bailey said
        in a speech on Thursday that cast an eye towards Donald Trump's
        White House return.
        
        Bailey said a commitment to open trade was vital to boost
        weak investment in Britain and restore productivity growth,
        along with an unlocking of capital from businesses and pension
        funds, something planned by finance minister Rachel Reeves.
        
        Brexit - which was backed by voters in 2016 and took effect
        in early 2020 - had contributed to a weakening of Britain's
        trade flows and weighed on the potential productive capacity of
        its economy, Bailey said.
        
        "As a public official I take no position on Brexit per se.
        That's important. But I do have to point out consequences,"
        Bailey said in his annual Mansion House speech to financial
        services leaders in London.
        
        "It underlines why we must be alert to and welcome
        opportunities to rebuild relations while respecting the decision
        of the British people."
        
        While the new Labour government has ruled out rejoining the
        EU's single market and customs union, Prime Minister Keir
        Starmer has said he wants to improve trade ties and diplomatic
        relations with the bloc.
        
        Bailey said Britain needed to look at the wider picture for
        growth, and not just the impact of Brexit.
        
        While Bailey did not refer directly to the U.S. election in
        his speech, policymakers around the world are still digesting
        Trump's victory and the prospect of double-digit tariffs on
        goods imported by the United States.
        
        These would have far-reaching implications for global trade
        and inflation, the BoE governor said.
        
        "The picture is now clouded by the impact of geopolitical
        shocks and the broader fragmentation of the world economy,"
        Bailey said.
        
        "Amidst the important need to be alert to threats to
        economic security, let's please remember the importance of
        openness... We must do what we sensibly can to preserve safe
        openness of the economy," Bailey said.
        
        Earlier on Thursday, fellow BoE rate-setter Catherine Mann,
        who is a U.S. economist, said the BoE should keep interest rates
        on hold until upside risks to inflation - including those posed
        by the election of Trump - dissipate.
        
        Bailey said he backed finance minister Reeves' plans to
        boost public investment announced in a budget two week ago.
        
        But he agreed with the government's budget forecaster that
        the budget measures alone would not raise long-run potential
        economic growth in Britain by much.
        
        "That needs to be accompanied by stronger business
        investment... And that business investment will depend on quite
        a few things including good public infrastructure," he said.
        
        Reeves is due to deliver her own Mansion House speech after
        Bailey, which will include an announcement of reforms to the
        pensions system to help put more funds into investment.