ALEX BRUMMER: Bailey insists Brexit has ‘created opportunities’ as he hails UK’s prospects

When Prospect magazine scooped up Andrew Bailey for an interview it doubtless had dreams of some crushing narrative on the disaster of Brexit.

Bailey is not his predecessor Mark Carney, who has been ferociously disparaging about life for Britain cut off from the EU.

At my own encounters with Bailey, before and since he became Bank of England Governor, he has always appeared a glass half-full optimist when it comes to the UK post-Brexit.

In his interview with former FT editor Lionel Barber, the Governor will have disappointed those who would like to see the UK cuddle back up to Brussels.

Invited to inveigh against Brexit, he mildly retorted that if you reduced the openness of an economy there will be ‘short-term’ negative effects. 

Optimistic: Bank of England Governor Andrew Bailey argues that Brexit ‘created opportunities’ for the City with much of the market and industry still in the UK

He pointed out that over the longer haul the UK would build new relationships. Financial services, the UK’s ace up the sleeve, could be a beneficiary.

The assumption that Brexit will result in a 4 per cent decline of GDP over time, as the Office for Budget Responsibility forecast, is unproven. 

The UK’s trade balance with the rest of the world has deteriorated. However, real GDP (output adjusted for inflation) since the Brexit referendum is slap in the middle of the G7 club of rich nations, level pegging with France and better than Germany and Italy.

Bailey argues Brexit ‘created opportunities’ for the City with much of the market and industry still in the UK. This, in spite of efforts by President Macron, among others, to seduce activity across the Channel.

On other fronts Bailey defended the Bank against criticism that ‘groupthink’ meant it was slow off the mark to tackle inflation.

Yet in citing other central banks, as largely in line with Britain, he was acknowledging a global, if not Threadneedle Street, like thinking. 

Prospect saw the Bank’s approach to the Truss eruption on bond markets as Bailey’s finest hour. Bailey speedily was off the mark in bailing out pension funds after the near-failure of liability driven investments (LDIs).

It is often forgotten that the warnings about the dangers in turning gilt-edged stock into derivatives have been in plain sight for some years yet the Bank, with responsibility for stability, did nothing. It plotted an escape route from a catastrophe which was on its radar: but failed to act.

Bond bother

The mantra that the Tories crashed the British economy is wearing thin now that bond markets across the globe have caught up with the Truss tantrum.

The herd instinct which drives market trends has lifted American long-term interest rates to the highest level in 16 years and the yields on eurozone bonds are at their most elevated for a decade.

Amid the alarm Britain finds itself in the backwash with the long 30-year gilt yield touching its highest level in three decades.

But the shorter two-year gilt is virtually unchanged. It is the Americans, not the Brits, paying 7.5 per cent for a 30-year-fixed rate home loan.

Financial markets finally are recognising that the era of super-low interest rates is over. Driving up fixed interest rates is the recognition that Joe Biden’s fiscal diarrhoea, so admired by Labour, has economic costs on a par with unfunded tax cuts.

Nor does it help that political stalemate on Capitol Hill means that last week’s extension of the debt ceiling – the total amounts of debt run up by the US government – is a very short-term fix.

Poisonous American politics, with next year’s presidential election ahead, are now driving the bond markets.

Troubled waters

As a supporter of the northern leg of HS2, one can only be appalled by cancellation.

Bringing in a new management of world class private sector engineers would have been the bold move. Instead, the nation has been presented with a list of £36billon of ‘new’ projects, such as electrification of the trans-Pennine routes, which have long been testimony to inaction and ‘can’t do’.

Great that funds are to be allocated to the North and Midlands. Many of the projects have a familiar feel and there is no guarantee that resources will ever be released.

Meanwhile, voters in London and the South East should feel aggrieved that the historic Hammersmith Bridge remains closed to traffic after three years of ineptitude: a familiar story.

This post first appeared on Dailymail.co.uk