Bank of England governor urges Britain to rebuild EU trade relations as key summit looms
Bank of England Governor Andrew Bailey called for efforts to rebuild trade relations with the EU, warning that repairing damage caused by post-Brexit damage is “good” to the British economy.
His comments came out ten days before the key UK EU summit in London, with Prime Minister Keir Starmer expected to propose a new strategic partnership aimed at “resetting” post-Brexit relations and restoring long-term trade flows.
“Having a more open economy to trade with the EU… would be beneficial,” Bailey told the BBC. “In recent years, there have been losses in trade with the EU and we must ensure that Brexit does not continue to harm the UK’s trade position.”
While stopping criticizing Brexit directly, Bailey said that reversing some negative economic consequences would support growth, especially when the UK hopes to re-determine itself during the global trade phase.
The latest success in other international trade has been achieved, with renewed focus on EU relations. Earlier this week, Britain signed a long-awaited free trade agreement with India, which Starmer called a “landmark deal” and is expected to grow to the economy by 2040.
Bailey praised the government's recent trade diplomacy, saying Britain's willingness to reach a deal, including last week's deal with the United States, sent a positive signal to other countries about the importance of global trade cooperation.
“Trade agreements can be completed, and trade is important,” he said. “This is good news, in this world, effective tariff rates are higher than before all of this started.”
Despite some relief from the U.S. agreement, including lowering tariffs on British automobile and steel exports, most tariffs on British goods remain higher than before 2024 due to President Donald Trump's global tariff regime.
Bailey said at an economic conference in Reykjavík, Iceland that the global economy remains turbulent and that the central bank must be “agile and robust” in the face of ongoing uncertainty, especially as the country adapts to adjustments to U.S. tariffs.
The UK's economy has been suppressed by rising taxes and weak consumer spending, further revealed by geopolitical trade disruptions. Although the Bank of England lowered interest rates to 4.25% on Thursday, it warned that further cuts could only be cut if it is more certain that inflation will drop to 2%.
The current inflation rate is 2.6%, and banks predict growth later this year is a key reason why the Monetary Policy Committee is cautious to further reduce interest rates.
The bank's measure has sparked criticism from business groups and trade unions. The British Chamber of Commerce (BCC) and the Trade Union Congress (TUC) believe the bank underestimated the severity of the economic downturn and that companies and families need more direct support.
“Many companies that are desperate for economic respite will be eager to cut tax rates further in the coming months,” said David Bharier, head of research at BCC. “Confidence is hit by the double pressure of domestic taxation and the global trade war.”
TUC responded to these concerns, saying working families also need cheaper borrowing to cope with the cost of living.
Bailey's speech ahead of the London summit reflects a growing consensus that the UK must once again consider its relationship with the EU, which remains its largest trading partner, as it attempts to restore investment, address inflation and prepare for a global trade restructuring.
“We can’t let political difficulties hinder the way long-term prosperity,” Bailey said. “It’s a moment of pragmatism and reconstruction.”
As the government prepares to propose a new UK EU framework, Bailey's intervention has added to the call for a more cooperative approach to trade – not only with new partners, but also with the closest homes.
