Bank of England's Andrew Bailey believes mini-budget damaged UK’s reputation

Governor says the UK's name 'has taken a knock' after the mini-budget crisis

Andrew Bailey, the Governor of the Bank of England. Reuters
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The mini-budget imposed by former prime minister Liz Truss in September damaged the UK’s reputation abroad, Andrew Bailey, the Governor of the Bank of England, has told MPs.

Mr Bailey said officials he met in the US after the new budget was announced expressed disbelief at the steps the government had taken.

“We have damaged our reputation internationally because of what happened,” he told the Treasury select committee.

“I was in Washington … at the IMF (International Monetary Fund) annual meetings, which is one of the biggest events of the year internationally.

“People were saying, ‘we didn’t think the UK would do this’.

“It will take longer to rebuild that reputation than it will be to correct the gilt curve, so we have to tread carefully.”

Mr Bailey said that the UK's reputation “has taken a knock”.

Ms Truss became the shortest-serving prime minister in British history and Kwasi Kwarteng one of the shortest-serving chancellors amid the fallout from the mini-budget.

It led to a massive run on the pound, pushing the currency to its lowest point against the US dollar in history, while the cost of government borrowing soared.

Ben Broadbent, a member of the Monetary Policy Committee that sets interest rates at the Bank, said many of the major effects of the mini-budget on exchange rates have dissipated.

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“Markets will always pay attention to policymakers, the events at the end of September are a pretty stark illustration of that. But as far as we can tell, as things stand most of it is gone,” Mr Broadbent said.

The UK is now facing a possible eight-quarter recession, according to Bank forecasts released this month – the longest consecutive period of decline since reliable records began a century ago.

Mr Broadbent said that was not written in concrete.

“The last two or three quarters of that projected decline in GDP (gross domestic product) are pretty small, so it wouldn’t take much of a tilt to shave a couple of quarters off the projected length of the recession,” he said.

“So, I would not stand squarely behind the length and say this will definitely happen. It could easily turn out to be a little bit shorter or a little bit longer.”

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On the impact of Brexit, fellow MPC member Dr Swati Dhingra said that real wages were lower in the UK because of the 2016 vote.

"It’s undeniable now that we’re seeing a much bigger slowdown in trade in the UK compared to the rest of the world,” said Dr Dhingra, who is also a professor at the London School of Economics.

“The simple way of thinking about what Brexit has done to the economy is that in the period after the referendum, there was the biggest depreciation that any of the world’s four major economies have seen overnight.

“That contributed to increasing prices and reduced wages, and I’m not talking simply through real wages, but also through nominal wages.

"We think that number is about 2.6 per cent below the trend that real wages otherwise would have been on.”

Updated: November 17, 2022, 12:40 AM