Thursday 8 October 2020 10:11 am

UK and EU should reach trade deal, says BoE governor Andrew Bailey

Bank of England governor Andrew Bailey said he believed the UK and European Union should be able to reach a trade deal. 

“I do think it is in the interests of both sides – let’s be blunt – to get an agreement,” he said. 

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“I’m surprised that the EU wants to restrict where their citizens can do business. We will certainly keep our markets open to the world,” Bailey said in an interview with the Yorkshire Post. 

The central banker reiterated that he would like to see Britain and the bloc retain equivalent standards in financial services regulation, but said it would be wrong for the country to continue to follow EU rules it had no control over. 

Cabinet Office minister Michael Gove told Parliament yesterday that the UK and EU would reach a deal before post-Brexit transition arrangements expire at the end of this year.

Britain’s chief negotiator David Frost said yesterday that the two sides were finally beginning to make progress in the contentious area of state subsidies in the talks. 

Risks to economy ‘very much to the downside’

Speaking at an online event today, Bailey said that the risks to the British economy were “very much to the downside” as it tries to extend its recovery from the downturn caused by Covid-19. 

He told an online webinar hosted by the European Commission that the UK’s third quarter GDP was probably between seven and 10 per cent below pre-Covid levels, in line with comments he made two weeks ago.

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While those figures would represent a recovery from the record 20 per cent drop in output recorded earlier this year, Bailey said the bounce back had been very uneven as some sectors continued to face restrictions.

“There is an unprecedented level of uncertainty at the moment. And the risks, I’m afraid — certainly as we see them — are very much on the downside,” Bailey said, citing rising coronavirus cases in Britain. 

The governor said that the BoE was not out of firepower for supporting Britain’s economy and would use it actively and aggressively if needed in future. 

“We must use policy actively and aggressively, and we have done that,” Bailey told the conference. 

“We are by no means out of firepower … in terms of our policy tools, and we will use that firepower as appropriate, properly and strongly in response to second and third waves, where we think it is necessary,” he added.

Banks should use capital buffers, Bailey says

Bailey also urged banks not to be uneasy about using their capital buffers to continue lending during the Covid-19 economic downturn. 

He told the event that capital buffers were in place to be used during a crisis such as the present one. 

“I understand there is a natural unease to do that. Given the history of this, given the financial crisis, it’s a brave person who says yes, I am going to run my capital ratio down,” he said.

“We have to use the stress test to demonstrate that is a realistic and sensible policy.”

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Asked in the webinar about the prospect of the UK and EU reaching a trade deal, Bailey said: “nobody benefits from protectionism in my view”.

Britain’s post-Brexit transition period would not be easy, he continued, and “would have been easier had we not have to deal with Covid”.