Bank of England warns Burnham of UK economy’s ‘big issue’
The Bank of England has warned Andy Burnham that economic growth remains the “big issue” facing the UK economy as he prepares to take the keys to Number 10.
Andrew Bailey, the central bank governor, told policymakers on Tuesday that the UK has had “low growth for the best part of 16 to 17 years”.
“The overall message I would give is that the big issue is growth in the economy,” Bailey said, when questioned what advice he would offer the Prime Minister-in-waiting.
The governor also launched a defence of parts of the UK’s regulatory regime, saying: “We will not get growth if we do not have financial stability… we can point to episodes in history that support that view.”
Bailey conceded there was space to evolve regulation following signs of resilience in the financial system but pushed back on claims a “lump of capital” was being held up by stringent requirements.
Bailey: Banks can reinvest in economy or hand cash to shareholders
The Bank of England’s Financial Policy Committee (FPC) said earlier this year it would simplify capital requirements for banks in a bid to free up additional capacity for lending into the UK economy.
Capital rules dictate how much of a bank’s risk-weighted assets must be funds that can absorb unexpected losses without putting customers or the financial system at risk.
“The evidence is they are in a strong position…there are a lot of complaints about what they are earning,” Bailey said.
Lloyds and Natwest both upgraded their income targets in the first quarter of the year after elevated interest rates led to a spike in revenue.
Rates are expected to stay higher for longer following the inflationary pressures caused by the war in the Middle East, where oil prices breached highs of $120 sending fears of an energy shock through global economies.
The rise in banks’ takings have led to lobbying calls for the new government to hit the sector with a windfall tax.
However, Bailey said the choice laid with the banks over whether they “reinvest earnings into their own business or pay them back to shareholders”.
The relaxing of capital rules follows a major lobbying offensive from the UK banking sector, which have claimed burdensome regulation was hindering competitiveness.
A report earlier this year from the Association for Financial Markets in Europe (AFME) – which represents over 150 global banks, including the UK’s ‘big four’ – called for the removal of “excessive conservatism” in banking regulation.