In a keynote speech at the Mansion House, Bank of England Governor Andrew Bailey emphasized the need for the UK to “rebuild relations” with the European Union while respecting the outcome of the 2016 Brexit referendum. Bailey, who has largely avoided commenting on Brexit due to the Bank’s political independence, acknowledged that the post-Brexit economic relationship with the EU has had a negative impact, particularly on trade.
Bailey stated that while he does not take a position on Brexit itself, the economic consequences of the UK’s departure are clear. He noted that the altered relationship with the EU has “weighed” on the economy, especially in trade, with goods exports being hit harder than services. He urged the government to be “alert to and welcome opportunities to rebuild relations,” while acknowledging the “very important decision” made by the British public to leave the EU.
Bailey’s comments come as the UK grapples with a sluggish economy, exacerbated by geopolitical tensions and global economic fragmentation. While he acknowledged the challenges posed by Brexit, he warned against focusing solely on its impact, pointing to broader global issues such as trade disruptions and the rise of protectionism.
Vicky Pryce, Chief Economic Advisor at the Centre for Economics & Business Research, echoed concerns about the UK’s ability to maintain a “special relationship” with the US, given its ongoing trade ties with the EU. Assessing Brexit’s economic impact has been difficult due to various other shocks, including the COVID-19 pandemic and the war in Ukraine. However, estimates suggest the UK economy could be 4% smaller in the long run as a result of Brexit.
Trade in goods, particularly food and agricultural exports, has been most affected by new trade barriers, while services—such as banking and financial services—have performed better than anticipated. Despite the economic fallout, Prime Minister Keir Starmer and some EU leaders have expressed interest in finding ways to “reset” the UK-EU relationship without reversing Brexit.
Spain’s Finance Minister, Carlos Cuerpo, told the BBC that while rejoining the EU or the single market is not on the table, there is room for a better deal and closer collaboration between the two sides. UK Chancellor Rachel Reeves also supported this approach, emphasizing that the EU remains the UK’s largest trading partner. Reeves reiterated Labour’s commitment to not reversing Brexit but called for a “reset” of relations, aiming for a more positive and productive partnership.
Rebuilding the Economy: Pension Reform and Financial Services
In her own speech at the Mansion House, Chancellor Rachel Reeves outlined plans to overhaul the UK pension system, proposing the merger of local authority pension funds to generate higher returns through larger, more impactful investments. The proposal, which has been criticized by some as risky, is part of Reeves’ broader economic agenda to stimulate growth and attract private investment.
Reeves also called for a reform of financial regulations that she argued have become too restrictive since the 2008 financial crisis. She suggested that the UK’s financial sector, which has long been a pillar of the economy, should no longer be taken for granted. The government is set to unveil a new financial services strategy in the spring, focusing on sectors such as fintech, sustainable finance, and asset management.
The government’s tax policies, including recent tax increases, have drawn criticism from businesses, who argue they could hinder growth. Reeves defended the tax hikes, saying they are necessary to “properly fund” public services, but also acknowledged that regulatory changes are needed to create a more growth-oriented environment for UK businesses.
Economic Growth Challenges and Productivity Decline
Bailey’s speech also touched on the UK’s long-standing productivity challenges. Since the 2008 financial crisis, productivity growth in the UK has stagnated, and it has failed to recover to pre-crisis levels. While Bailey pointed out that productivity problems are not unique to the UK, he highlighted that the US has had more success in this area.
Shadow Chancellor Mel Stride of the Conservative Party responded to Reeves’ pension reforms, saying that the party would carefully examine her proposals. However, he warned that Labour’s recent budget—which included higher taxes—would undermine efforts to boost growth and attract investment. Stride suggested that the government’s economic policies were sending “the wrong signal” to investors.
Looking Ahead
As the UK navigates its post-Brexit economic landscape, both Bailey and Reeves emphasized the need for long-term structural reforms to boost growth, improve productivity, and rebuild international relationships—particularly with the EU. While Brexit continues to shape the UK’s trade and economic outlook, policymakers appear focused on fostering resilience and seeking new opportunities for economic collaboration, both domestically and internationally.