Bank of England Governor Warns of Economic Challenges Amid Weak Growth and Low Labor Participation
Bank of England Governor Andrew Bailey has warned that the United Kingdom faces a “significant challenge” due to weak economic growth and declining labor force participation since the COVID-19 pandemic.
Speaking at the annual conference organized by the U.S. Federal Reserve in Wyoming on Saturday, Bailey highlighted that an aging population and reduced participation of young Britons in the workforce due to illness have increased the need to boost economic productivity. He added:
“Looking at potential growth rates, this places greater focus on improving productivity… population aging will not change in the foreseeable future.”
Declining Labor Participation
Official data show that the share of people aged 16 to 64 active in the labor market remains below pre-pandemic levels, in contrast to other advanced economies. Over one million people left the UK workforce after the pandemic due to chronic health issues, and participation has yet to recover to pre-COVID levels. Bailey noted that an aging population exacerbates this challenge.
He also questioned the quality of labor market data in the UK, cautioning that the decline in participation might be overstated. He said:
“It is also possible that the economic impact of those not participating is larger than reflected in workforce surveys.”
Lower Growth Forecasts and Inflation Risks
The Bank of England recently cut its estimate for potential GDP growth to just above 1%, which increases the country’s vulnerability to inflationary pressures. Alongside its decision to reduce interest rates to 4% this month, the central bank warned that price growth remains a significant threat to the economy.
Weak potential growth poses a major challenge for UK Chancellor Rachel Reeves, complicating efforts to manage debt and adhere to self-imposed fiscal rules. The UK’s budget watchdog is expected to lower growth forecasts, which could force the government to respond with measures such as tax increases to address fiscal gaps.
