Bank of England warns on fiscal strain from growth and shocks

Summarised from 2 outlets · Updated 8 Oct, 15:48 · Archive

Bank of England Governor Andrew Bailey has cautioned that low economic growth and repeated supply shocks erode public finances.

Bank of England Governor Andrew Bailey has warned that persistent economic challenges are undermining the government's financial position. He said low growth combined with repeated supply shocks – citing Russia's war in Ukraine and the Middle East conflict as examples – weaken public finances and increase pressure on governments to provide support.

Bailey said in a speech prepared for the Istanbul Economic Forum that whilst governments can ordinarily use their balance sheets to cushion a severe downturn, 'when shocks become more frequent, underlying growth is weaker, and the succession of shocks leads to a higher level of government debt, this becomes much harder to sustain.' He noted that calls for spending increase when borrowing costs are higher and growth is weaker, and that if financial markets doubt the government's fiscal path, borrowing costs rise further.

The 10-year gilt yield reached about 5.53 per cent on Thursday, the highest level since 2007. Bailey stressed that whilst it is not his role as a central banker to comment on fiscal policy, it 'must be credible and directed at stability and be seen as such by the markets'.

Bank of England warns on fiscal strain from growth and shocks — Image: Evening Standard

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How it is being reported

Low growth and successive shocks erode public finances, Bank boss saysAndrew Bailey’s remarks come weeks before the Chancellor lays out his autumn Budget statement.Evening Standard · 8 Oct, 15:15
Low growth and successive shocks erode public finances, Bank boss saysAndrew Bailey’s remarks come weeks before the Chancellor lays out his autumn Budget statement.Independent Business · 8 Oct, 15:15

In this story: Andrew Bailey · Bank of England · Russia · Ukraine · Middle East · Istanbul

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