The advantages of an independent central bank are well-established. Interest rates tend to be set according to the economic, rather than electoral, cycle. Inflation is lower than it would otherwise be, as a general rule, and the currency is more secure.
The nervous reaction of the markets to US president Donald Trump’s clumsy attempts to undermine the chair of the Federal Reserve, Jerome Powell, rather proves that point, just as the earlier, disastrous Truss experiment did in the UK.
Beyond that, the best central bankers are those who have the confidence and the courage to speak out on the economic challenges facing a nation as they see them.
So it is with Andrew Bailey, governor of the Bank of England. Amid all the understandable euphoria about the UK-India free trade agreement and the Trump administration’s partial relaxation of tariffs on British exports, Mr Bailey has reminded the nation of a simple truth: that the European Union remains the closest and most valuable of all the UK’s economic relationships, and it must not be neglected, even as Brexit and the current tariff-mania in Washington have forced the UK to explore other avenues to promote trade, investment and much-needed economic growth.
Mr Bailey does not take a public view on Brexit. He is not a “Remainiac”, he is not advocating any particular policy position; and, still less, is he a member of some malign conspiratorial, economic establishment “Blob”. Indeed, he warmly welcomed the US-UK Economic Prosperity Deal as very good news.
What he is doing, as a conscientious public servant, is stating the obstacles to boosting economic growth, and allowing the public and politicians to draw their own conclusions. They are free to ignore him, should they wish.
There is no arguing with Mr Bailey’s statement that reversing the decline in trade between Britain and its neighbours would, in principle, be “beneficial” – even the most fanatical Brexiteer should agree with that. As the UK extends its global economic links, he gently warned: “It is important that we do everything we can to ensure that whatever decisions are taken on the Brexit front do not damage the long-term trade position. So I hope that we can use this to start to rebuild that relationship.”
Although he did not quantify the dynamics of the evolving situation, on any realistic assessment the added value to GDP of all the UK’s post-Brexit deals to date, including with Australia and the trans-Pacific partnership (covering Japan, South Korea, Indonesia and others in the region), will be about a quarter of the permanent losses indicated by leaving the EU.
There is, in other words, some perspective required and a balance to be struck even outside the European Union, one dictated by geography and the integration of the British and European economies for more than half a century. The EU still matters, including in security and defence, areas outside Mr Bailey’s purview.
Fortunately, the work of rebuilding the previously close and mostly harmonious relationships with European friends and allies is well underway. It was, in fairness, begun by Rishi Sunak, who did his best to repair the damage done by Boris Johnson and Liz Truss’s needless antagonism. But it has fallen to Sir Keir to deliver the Brexit “reset” he promised the British people at the last election.
Later this month, on 19 May, an ambitious and perhaps historic recasting of relationships is to be unveiled at the next UK-EU summit. It will cover defence, which has become so crucial since the Trump administration signified its disengagement from Europe and the defence of Ukraine, and is an area where the UK has much to offer and much to gain from pooling sovereignty.
The long-awaited youth mobility scheme – reciprocal, of course – will be as great a cultural and “soft-power” benefit as any marginal economic impact and will strengthen bonds long into the future. The detailed work of relaxing rules on trade, especially in foodstuffs, fisheries and livestock, promises to help hard-pressed British producers who have lost vital export markets in recent years. As a package, it will be at least as significant as the new Indian and American arrangements, certainly in the short to medium term.
Once again, the new deal with the EU should represent another breakthrough and personal vindication for what Sir Keir describes as Britain’s “serious pragmatism”, a world away from the puerile posturing of some of his more recent predecessors. As Peter Mandelson, in Churchillian mood, said of the US-UK Economic Prosperity Deal, it’s “not the end … it’s the end of the beginning”.
There is no reason why the UK should not have further “resets” as mutual trust is restored and the exigencies of resisting Russian expansionism force the pace. Unlike some years ago, and having now lived through the bitter realities of Brexit, British public opinion is far more favourable to closer ties with Europe, and is not dismayed by the path the government is taking. On the contrary, behind aspects of the EU customs union, there is no necessary clash between “global Britain” and an ever-closer friendship with Europe.
As with some previous prime ministers, Sir Keir, so troubled at home, is enjoying spectacular success in international affairs, and he deserves credit for that.
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