Britain must rebuild trade ties with Europe to help stem the economy’s long-term decline, the Bank of England Governor has told Rachel Reeves.
In a major intervention in the wake of Donald Trump’s US election victory, Andrew Bailey urged the Chancellor to “welcome opportunities to rebuild” post-Brexit relations with the Continent as Ms Reeves orders regulators to focus on growth as part of plans to fire up the City.
Addressing an audience of bankers at the annual Mansion House dinner, Mr Bailey said that the UK’s economic performance since the 2008 financial crisis was “not a good story”, warning that Brexit had “consequences” for growth.
The Chancellor echoed Mr Bailey’s remarks, as she renewed Government calls for a “reset” with the European Union after blaming Brexit for some of the UK’s economic woes.
She identified Britain’s departure from the EU as a key driver of the “structural challenges” facing the economy”.
However, as well as forging stronger ties with Europe, she also vowed to expand trade links with the US and China amid a backdrop of rising global tensions.
She said: “We will not be reversing Brexit or re-entering the single market or customs union, but we must reset our relationship.”
The Chancellor also issued a thinly veiled rebuke to Mr Trump’s call for more tariffs, as she called for “free and open” trade to boost the economy.
She also singled out the US as Britain’s “single most important destination for financial services trade.”
Meanwhile, Mr Bailey also suggested Mr Trump’s return to the White House and broader geopolitical tensions threaten free trade, identifying closer trade ties with Europe as an area for future growth.
Signalling Brexit has stunted the UK’s growth potential, Mr Bailey said: “The changing trading relationship with the EU has weighed on the level of potential supply.”
“The impact on trade seems to be more in goods than services, that is not particularly surprising to my mind. But it underlines why we must be alert to and welcome opportunities to rebuild relations while respecting the decision of the British people.”