Bank of England governor Andrew Bailey warned that Brexit will negatively impact the UK's economic growth for the foreseeable future, citing trade restrictions that have weighed on supply levels and increased economic challenges.

Bailey emphasized that reducing openness through trade restrictions hampers long-term growth, aligning with traditional economic models that suggest trade adjustments can eventually lead to some recovery.

He called for stronger ties with the EU to mitigate some of Brexit's economic damage, acknowledging that trade restrictions have contributed to subdued growth and higher debt levels.

Bailey highlighted that years of low productivity have increased UK debt-to-GDP ratios, which would be lower if growth had matched pre-financial crisis levels, making economic management more difficult.

The IMF forecasts that UK inflation will reach the highest levels in the G7 in 2025 and 2026, adding further pressure on policymakers amid ongoing economic uncertainty.

This inflation outlook comes at a time when official data shows muted economic growth, with GDP rising only slightly in August and contracting in July, reflecting persistent economic challenges.

While the UK has negotiated lower tariffs outside the EU—such as a 10% tariff with the US compared to 15% with the EU—Bailey warned that ongoing issues like low productivity and high debt continue to threaten economic stability.

Bailey pointed out that the Bank of England's ability to act is limited by the economy's lower 'speed limit,' making it more vulnerable to inflation, and expressed concern over the rapid rise of private credit from non-banks.

His remarks follow previous warnings from UK officials, including his predecessor Mark Carney, about recession risks and the significant economic costs associated with Brexit.

Bailey stressed that slower economic growth post-Brexit has made fiscal policymaking more difficult, with higher debt-to-GDP ratios complicating efforts to manage the economy effectively.

He advocates for increased investment in innovation, particularly AI and new technologies, as a crucial strategy to counteract productivity declines and foster future growth, despite potential risks to financial stability.

Bailey clarified that he does not take a position on Brexit itself but recognizes its substantial impact on the UK's economic position, emphasizing the importance of rebuilding relations with the EU.