Andrew Bailey said a combination of headwinds prevented the economy from recovering to pre-pandemic levels, while he warned it would take time for the government to repair the damage to Britain’s international reputation caused by the disastrous mini-budget under former prime minister Liz Truss . . It came as rampant inflation of 11.1% – the highest rate since October 1981 – piled more pressure on the Bank to keep raising interest rates. In a chilling assessment on the eve of the chancellor’s autumn statement, the Bank governor told MPs on the Commons treasury committee: “I’m afraid it’s not a good story.” Bailey said UK GDP remained around 0.7% below its pre-Covid level, compared with much stronger recoveries in the eurozone and the US, where he said GDP levels had recovered to around 2.1 % and 4.2% above pre-pandemic levels. “It’s a dramatic difference,” he said. Asked whether Brexit had contributed to the country’s underperformance, he said “there is an effect” of leaving the EU, including a “long-term decline” in productivity levels. “Is not [an impact] we have been surprised by. As a public official I am neutral on Brexit as such, but I am not neutral in saying that these are its most likely economic effects,” he said. In a damning verdict on the mini-budget, Mr Bailey said the UK had “damaged our reputation internationally because of what happened”. Threadneedle Street was forced to step in with an emergency bond-buying program to calm jitters in government debt markets after Kwasi Kwarteng, the chancellor at the time, announced almost £50 billion in unfunded tax cuts. Bailey said the collapse had been raised at a gathering of world leaders and central bank governors at the International Monetary Fund’s annual meeting in Washington last month. “People were saying, ‘We didn’t think the UK would do this.’ Insinuating that bond market investors watched Kwarteng’s mini-budget speech unfold in a state of near disbelief, he said the former chancellor’s plan to scrap the 45pc additional income tax rate. “Financially speaking it’s not the biggest thing. [But] The way people put it to me in the market was, again, is this the right thing in this situation? “The camp of believers in what I call the kind of financial crisis of the early 1980s is not a very big camp these days.” Under questioning by deputies, Bailey said he would not take a raise if offered. Subscribe to Business Today Get ready for the business day – we’ll point you to all the business news and analysis you need every morning Privacy Notice: Newsletters may contain information about charities, online advertising and content sponsored by external parties. For more information, see our Privacy Policy. We use Google reCaptcha to protect our website and Google’s Privacy Policy and Terms of Service apply. Households are under intense pressure from inflation after rising to 11.1% in October due to rising energy bills and the rising cost of a weekly shop. Figures from the Office for National Statistics (ONS) showed that the annual rate of inflation last month jumped by one percentage point from 10.1% in September. Official data showed the British economy took its first steps into a potentially long-term recession in the three months to September, with GDP contracting by 0.2% in the third quarter. A second straight decline in the fourth quarter would mean the technical definition of a recession. Answering questions from MPs in the Finance committee, Bailey and three other members of the Bank’s monetary policy committee (MPC) said part of the reason the country was lagging behind was the sharp reduction in the size of the workforce from Covid. “The UK is a dramatic outlier compared to all other advanced economies. This is a puzzle,” said MPC member Catherine Mann. UK employment remains lower than before the health emergency hit, thanks to a rise in older workers leaving the workforce and record levels of long-term ill health among working-age adults. Swati Dhingra said Brexit is hindering UK trade and increasing inflation by adding to the cost of imported food and other products. “It’s undeniable now that we’re seeing a much bigger slowdown [in trade] in the UK compared to the rest of the world,” he said. He said post-Brexit trade barriers had led to a 6% rise in UK food prices, alongside a negative impact on wages and living standards in Britain, adding: “We are certainly underperforming compared to our peers.”
