Bank of England Governor Andrew Bailey warned that Brexit will weigh on Britain's economic growth for years and that companies will only partially adjust. Speaking in Washington, he signaled that the structural effects of the 2016 decision continue to shape trade, investment, and productivity.
The remarks add urgency to a policy debate over how the United Kingdom can boost output while managing inflation, tight labor markets, and weak investment. The comments, reported by Reuters, come as global financial officials meet in the U.S. capital.
"Brexit is likely to weigh on British economic growth over the coming years and businesses are only likely to partially adapt over time," Bank of England Governor Andrew Bailey said.
His message suggests that the drag is structural, not only cyclical, and that firms will struggle to fully offset higher trade frictions and supply chain changes.
Since the 2016 referendum, economists have debated the long-term impact on growth. The UK Office for Budget Responsibility (OBR) has estimated that the level of GDP will be about 4% lower in the long run than it would have been without the new trading arrangements. That estimate reflects higher barriers to trade with the European Union, weaker investment, and reduced labor mobility.
The International Monetary Fund has projected modest UK growth compared with pre-2016 trends, citing both tighter financial conditions and post‑Brexit trade costs. Business investment, after a long slump, remains below the trend that prevailed before the vote.
Companies have adjusted in several ways since the end of the transition period. Many have built extra inventory, restructured supply chains, or set up EU subsidiaries to keep serving key markets. These steps have helped avoid more serious disruption but often raise costs.
Bailey's point that adaptation will be partial aligns with recent survey evidence from manufacturers and small firms that cite paperwork, border delays, and compliance costs as lasting headwinds. Services have held up better than goods, but professional and creative industries still face market access limits.
The growth drag overlaps with a period of high inflation. The Bank of England has focused on bringing inflation back to target, while monitoring signs of weak output. A smaller trade sector and slower productivity can complicate that task by limiting supply and raising costs.
Productivity growth, already weak before 2016, has struggled to improve. Higher trade costs can reduce competition and dampen incentives to invest, train, and innovate. Without stronger productivity, wage gains risk feeding prices rather than real output.
Taken together, these indicators support Bailey's warning that the drag will persist, even as firms adapt.
Policy options discussed by economists include targeted trade deals, smoother border processes, and streamlined regulation to cut compliance costs. Improving skills and boosting investment incentives could help offset some of the hit to productivity.
Some business leaders argue that certainty and stable rules are as important as new agreements. Others want practical fixes to border checks and digital systems that would reduce delays. A renewed focus on services market access could also support growth.
The Bank of England will weigh these structural issues as it sets rates. A slower growth trend could limit how fast the economy can expand without reigniting inflation, shaping the path for monetary policy in the medium term.
Bailey's warning highlights a simple message: the economic effects of Brexit are not a short‑term shock but a long‑term challenge. The key questions now are how much firms can continue to adjust and how far policy can soften the drag. Watch for updates from the OBR and the IMF later this year, fresh investment data, and the Bank's guidance on how the growth outlook influences its next moves.