Bank of England Governor Andrew Bailey has described low economic growth as a “big issue” for the United Kingdom, delivering a stark message to the incoming government of Andy Burnham. Bailey also raised concerns that renewed hostilities in the Middle East could threaten financial stability.
Growth Concerns Highlighted
Speaking to MPs on the Treasury Committee, Bailey said: “The overall message I would give is that I think the big issue is growth in the economy. I do actually think that there are signs of a very resilient financial system. What I think is much more challenging is we’ve had low growth in the economy now for the best part of 16 to 17 years. So this is not a story about any one government… but I think it’s important because it is a critical structural issue.”
Bailey stressed that financial stability is a prerequisite for growth, stating: “We will not get growth if we don’t have financial stability.” His comments come as Labour MP Andy Burnham is now guaranteed to succeed Sir Keir Starmer as prime minister next week.
Middle East Tensions Impact Markets
The governor’s remarks coincide with heightened hostilities between the US and Iran, which sent oil prices to a monthly high on Tuesday. Bailey noted that risks to UK financial stability have increased in recent weeks due to a “fragile” ceasefire and instability in the region. “I don’t think I feel qualified to judge how long this will go on for in terms of this resumption of hostilities and how it’s going to end,” he said. “But it underlines that is going to be an unstable process for the foreseeable future.”
The price of Brent crude oil surged more than 4% on Tuesday to around 87 US dollars (£65) per barrel, the highest level in a month. UK long-term borrowing costs also rose, with yields on 30-year gilts hitting a two-month high of approximately 5.73%.
Energy Prices and Pass-Through
Bailey pointed out that while energy prices have fallen since peaking in April, there remains “fairly soft evidence of the pass-through into UK prices.” He added: “The one caveat I would add, which I don’t think gets enough coverage, is although crude oil prices come down, the prices of refined products have not come down as much. So we’re talking about things like gasoline and diesel at this point, which of course are the end products, so those are the things that matter.”
The governor emphasized that global factors, rather than domestic developments, are driving financial market movements. “As the last few days have demonstrated, the big driver of moves in the financial markets is actually not what happens in the UK – it’s the global setting,” he said.
