UK economy ‘stuck’, says Bank of England governor

The Governor of the Bank of England has said he understands why many people feel the UK economy is “stuck” after a prolonged period of weak growth.

Speaking a day after the Bank cut interest rates from 4% to 3.75%, Andrew Bailey said the sense of economic stagnation reflects a long-standing issue that predates the current Labour government. His comments come amid mounting evidence of a slowdown, with the economy contracting for a second consecutive month in October as households reacted to fears of Budget tax rises.

Further data from the Office for National Statistics showed retail sales unexpectedly fell in November, with Black Friday failing to lift spending ahead of Christmas. Separate figures released on Friday also revealed that record public sector pay growth and rising welfare costs have pushed government borrowing to its highest level outside the pandemic.

Bailey identified three major structural headwinds facing the UK economy: an ageing population, the end of the post-Cold War “peace dividend” on defence spending, and the impact of climate change. He declined to comment on when the UK’s nearly £2.9 trillion national debt might become unsustainable.

“I think Rachel Reeves is right to highlight the consequences of this extended period of low growth,” Bailey told BBC Radio 4’s Today programme. “It is a challenging environment, and it’s important to be clear about these issues and how, as a country, we can best tackle them.”

He added that raising the economy’s growth rate is crucial, as it would materially change the outlook, but stressed the need for a clear and honest debate about how to address the structural challenges holding the economy back.