Weak economic growth and a drop in workforce numbers are posing an “acute challenge” to Britain, Bank of England governor Andrew Bailey has said.
An ageing workforce coupled with a rise in the number of people defined as “long-term sick” means the UK’s productivity is suffering, he told a gathering of fiscal policymakers in Jackson Hole, Wyoming.
According to official data, the percentage of 16- to 64-year-olds who are economically active in Britain has dropped since the Covid pandemic, making the country an outlier among advanced economies. Mr Bailey added that it is a “very concerning development” that mental health has become the most common reason for inactivity.
There were caveats to this data, he said, such as a low response rate and a higher chance that economically inactive participants would take part.
Regardless of this, Mr Bailey said: “This is a pretty sad story for the UK because … we are well at the bottom of the league table.”
Speaking over the weekend, the policymaker also suggested that increasing sickness and a large decline in young people in work may be at least partially connected.
Recent government research found that nearly one in four people out of work due to ill health are under 35, with mental health being one of the most common issues.
Raising productivity growth needs to be a priority for Britain, Mr Bailey said, adding: “Ageing is not going to turn around in the foreseeable future.” Forecasts show that 40 per cent of the UK population will be older than 64 by 2040.”
Labour has said it wants to boost labour force participation and economic growth, unveiling several policies with this aim since coming into power in July 2024.
The Department for Work and Pensions (DWP) received £45m to deliver a “youth guarantee” – a project in its early stages – which aims to ensure all young people are either in work, education, or training.
Welfare reforms have also formed a central part of the government’s plans to boost workforce participation. However, ministers were forced to water down cuts to disability benefits in July following widespread criticism, including from many of their own MPs.
Data for April to June 2025 showed that 21 per cent of Britons aged 16-64 are neither in work nor actively seeking work, down from a peak of 22.2 per cent in 2024, but above the 20.3 per cent seen pre-pandemic.
Some Bank of England policymakers have expressed fears that labour force participation is causing Britain’s inflation rate to remain stubbornly fixed above target. At 3.8 per cent in July, it remains the highest in the G7, and far above the Bank’s 2 per cent goal.
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