Bank of England governor Andrew Bailey has warned that Brexit weakened UK trading opportunities and that Britain should commit to free trade in the future.
Speaking at a Central Bank of Ireland conference held in Dublin, Mr Bailey said the world economy has experienced “big external shocks” such as the Covid pandemic and Russia’s invasion of Ukraine.
But Mr Bailey that there was an issue relating to events “nearer to home” which has also contributed to “fragmentation in the world economy”.
He said: “As a public official, I take no position on Brexit per se. That was a decision for the people of the UK. It has led to a reduction in the openness of the UK economy, though over time new trading relationships around the world should, and I expect will, be established.
“Of course, that requires a commitment to openness and free trade.”
Mr Bailey’s comments are unlikely to be welcomed in Westminster as the government seeks to convince the wider public and businesses of the benefit of free trade deals made since Britain left the EU.
Recent trade deals have been struck with Australia, New Zealand, Norway, Iceland and Liechtenstein – but agreements with larger economies such as India and the US have not yet been forthcoming.
The BoE last week kept interest rates at 5.25 per cent and released gloomy economic forecasts
The government’s own research released in August this year indicated that three out of five (58 per cent) businesses think the current free trade deals will have no positive impact on their business.
Mr Bailey spoke about the high inflation which has prompted a cost of living crisis in the UK and said he is “optimistic” that inflation will come back to the 2 per cent target within two years.
He said: “Policy is going have to be restrictive for an extended period to see the second half out, which is where policy is going to have to do the work to bring inflation back to target, and I believe it’s going to happen.
“Our forecast suggests we will be back at the target in around the two-year horizon.
“I’m optimistic. I think it will happen, but I’m afraid we’ve got to continue doing the work to make it happen.”
Mr Bailey also touched on the use of artificial intelligence in making medium-term economic forecasts for the BoE.
He said: “We’re interested in AI from a public policy issue, but like all organisations we’re interested in what we’re going to do with it.
“I think the caution I would have from what I’ve seen so far is that machine learning focuses, if you like, on using vast amounts of data to predict one step ahead. That can be useful, don’t get me wrong.
“It’s not, I think, so useful in terms of the more medium-term forecasting we have to do for monetary policy where you really need a structural model.”
In other developments, the Institute for Fiscal Studies (IFS) has criticised Rishi Sunak’s claims that debt is falling. In a video posted to Twitter/X, Mr Sunak said that the “economy is growing” and that “debt was falling”.
However, the IFS’s Ben Zaranko has criticised this claim. He told Bloomberg: “It’s not accurate to say that debt is falling. Public sector debt is currently rising in cash terms, real terms, and (most importantly) as a per cent of national income.”
It comes as the BoE last week kept interest rates at 5.25 per cent and released gloomy economic forecasts indicating that the UK economy is stagnating and is forecast to see zero growth until 2025.
And in bad news for homeowners, Mr Bailey said it was “much too early” to think about cuts to interest rates and they would “remain where they are now for an extended period of time to get inflation back to target.”
