Andrew Bailey, the Governor of the Bank of England, has said that strong trade will be essential to UK growth in the coming years.
The Bank of England last week held interest rates at 4.5 per cent, citing a possible global trade war as a risk to the economy.
In a speech delivered at the University of Leicester, Bailey highlighted the importance of fair trade in growing the economy.
He said he agreed with former US trade envoy Robert Lighthizer – the man who led President Trump‘s tariff policies during his first administration – in believing that free trade was a “force for prosperity if it rests on a level-playing field”.
“It has come under strain since [the 1990s], and most recently we have been forcefully reminded that trade policy has to include a national security dimension,” he said. “These two points – domestic macroeconomic forces and trade policy – are not incompatible. They sit together.”
Bailey also cited advances in artificial intelligence and cheap energy prices as key to unlocking growth.
“It is not just a short-lived boost to productivity growth but rather a significant change which keeps improving and lowering costs and makes innovation across the economy easier,” Bailey said of AI technology.
“It should have a significant and prolonged positive impact on productivity growth, and will itself create new ideas, new products and new ways of doing things. AI appears to me to have that potential, and so it could over time lift growth rates and per capita national income.”
He also noted that lessons from the Industrial Revolution meant there were “grounds for optimism” in the ongoing shift in energy supply to renewable sources.
His comments came after he described the UK’s economic growth over the last 15 years as “not a very good story”.
The Bank of England forecasts UK growth to hit just 0.75 per cent this year, half of a previous estimate of 1.5 per cent.
Many analysts believe that the Bank of England will cut interest rates at the next decision in May despite minutes from the latest decision pointing to risks brought by trade uncertainty.
Lingering pressures to inflation, including an increase to national insurance contributions which will come into effect next month, also risk throwing the Bank’s trajectory off course.
The Bank’s chief economist said in early March that “larger and more rapid” interest rate cuts were unlikely while external member Alan Taylor said an “age of uncertainty” put the UK economy at risk.