Bank of England Governor Andrew Bailey warned that the United Kingdom’s economic system is still static.
The mentioned statement became a kind of symbolic cloud, reminiscent of bad weather that has not been totally completed as a phenomena, against the background of a sunny landscape formed by the unexpected increase of UK gross domestic product (GDP) at the end of 2024.
On Monday, February 17, during a conversation with media representatives, Andrew Bailey pointed to a tepid underlying economic growth picture and softening of the labor market situation after the United Kingdom’s GDP rose by 0.1% in the fourth quarter of 2024.
The UK economic growth data released last week came as a pleasant surprise. This news is particularly optimistic for the Labour Party, which has seen a consistent deterioration in economic performance since returning to power in July last year. The Bank of England predicted that in the fourth quarter of 2024, the GDP of the United Kingdom would continue to move along a downward trajectory. At the same time, the final economic reality in the country turned out to be more positive. The implementation of the negative scenario contained in the forecast of the financial regulator of the United Kingdom could increase the risk of a technical recession at the beginning of Keir Starmer’s premiership.
During a conversation with media representatives on Monday, Andrew Bailey noted that GDP figures for the fourth quarter of 2024 were slightly higher than the Bank of England’s preliminary expectations. However, he stated that, in his opinion, the mentioned result does not change the general story that is being observed in the United Kingdom. In this context, Andrew Bailey said that the UK economic system has been quite static since the end of spring 2024.
Bank of England rate-setters have warned of gradual and cautious interest rate cuts despite the stagnation of the economy. In the relevant context, strong inflationary pressures within the country and global political uncertainty were also highlighted separately.
At the same time, some Bank of England officials are more concerned about the deteriorating economic outlook, and two of them, including Catherine Mann, a former proponent of the so-called hawkish position, backed a larger lowering of borrowing costs by half a percent at the financial institution’s February monetary policy meeting. Other officials voted to cut interest rates by a quarter of a point, to 4.5%.
Catherine Mann’s switch from a hawkish position to a dovish one, according to media reports, provoked internal tensions. It is worth noting that Andrew Bailey and Chief Economist Huw Pill made veiled criticism of her position.
Mr. Bailey warned investors not to read too much into the February vote, arguing that it is not a communication tool. Such statements contradict Catherine Mann’s goal to jolt markets into loosening financial conditions. On Monday, Andrew Bailey noted that Catherine Mann’s analysis was similar to his own but that she reached a somewhat different conclusion.
During a conversation with media representatives, the head of the Bank of England appeared to put more weight on the persistent weakness of the United Kingdom’s economic system. According to him, there was a period of low growth in the UK economy. He also noted that the financial regulator of the United Kingdom thinks that the situation in the labor market is softening.
The Bank of England is currently trying to determine whether anemic economic performance is linked to lower demand or supply, as the outcome is crucial for setting interest rates. A decrease in supply can trigger inflationary pressures, as even tepid demand bumps up against the economy’s limits.
Andrew Bailey also linked economic woes to weak investments that hamper productivity. Moreover, he repeated the warning that there is no trade-off between financial stability and economic growth. In this case, as noted by the media, there was a hint of the Labour government’s plan to reduce the burden of regulation.
It’s worth noting that the economy of the United Kingdom as a whole continues to be strong. In this case, the primary is a comparison of the situation in the UK with the state of affairs in other countries. At the same time, significant concerns are currently circulating about the growth prospects of the United Kingdom’s economic system. The positive indicators for the fourth quarter of 2024 were unquestionably optimistic, but at the same time very moderate.
