Bank of England chief backs Rachel Reeves's calls for closer EU ties

Andrew Bailey has backed Rachel Reeves's efforts to strengthen relations with the European Union, arguing that Britain “needs allies” to support economic growth.

The Bank of England Governor made the remarks during the central bank’s annual Agenda for Research conference on Thursday.

His remarks follow the Chancellor's warning that the Iran conflict is driving up prices and strengthening the case for reducing trade barriers with the EU, after she told the National Growth Debate that European nations are “our closest neighbours, our biggest trading partners”.

She said that “if you load additional costs on exporters and importers, the costs are ultimately going to be borne by the consumer”, arguing that alignment with EU rules in sectors such as chemicals and food standards would help cut prices.

The Prime Minister is preparing to outline fresh proposals aimed at drawing Britain closer to Brussels, with announcements expected as early as Monday.

Addressing the event, the Governor described rebuilding trade links with Europe as a “sensible thing to do” for the UK economy.

“We’re an open economy, we do need allies,” Mr Bailey said. “I think seeking to rebuild trade relations with Europe is a sensible thing to do.”

He also referenced economist Adam Smith while discussing the relationship between trade and economic growth.

“I always sort of try to skip around the Brexit debate per se because I’m a public official,” he said, “but I usually lean on Adam Smith at this point and say: ‘Look, we learned from Adam Smith the relationship between trade and growth.’”

The comments amount to a significant endorsement of Sir Keir’s strategy as the Prime Minister seeks to regain momentum following Labour’s poor local election results.

Those elections marked a difficult setback for the Government and increased pressure on Labour’s leadership.

Last year, Sir Keir agreed a “reset” arrangement with European leaders aimed at improving post‑Brexit cooperation.

Under the agreement, Britain committed to aligning with EU food standards and accepting oversight from the European Court of Justice in certain areas.

The deal also reduced customs checks on British exports entering the bloc.

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However, the arrangement requires the UK to follow regulations it no longer helps shape and involves renewed British financial contributions to EU programmes.

Given the sensitivity surrounding Brexit‑related remarks from senior public officials, Mr Bailey’s comments are likely to attract political attention.

His predecessor, Mark Carney, repeatedly faced criticism from Leave supporters during the Brexit debate over warnings about the economic consequences of leaving the EU.

Since becoming Governor, Mr Bailey has consistently argued in favour of closer cooperation with Brussels.

At the Mansion House dinner in 2024, he urged Chancellor Rachel Reeves to pursue stronger ties with the EU and warned that Brexit carried “consequences” for economic growth.

During a speech in Dublin last year, he encouraged ministers to deepen cooperation with Europe to offset what he described as the “negative effects” on trade.

While speaking in Washington DC in 2025, he warned that Brexit’s impact on the British economy would remain “negative” for the “foreseeable future”.

Beyond Europe, Mr Bailey stressed the importance of maintaining international economic institutions during what he called “a critical time” for global cooperation.

He highlighted Britain’s upcoming role as chair of the G20, which the UK is set to assume from the United States next year.

“We’re going to inherit the chair of it next year from the US,” he said. “We have to preserve it and seek to rebuild it.”

International institutions, he warned, remain essential to global economic stability.

“Without having that structure, I think we are in a much more dangerous place,” he said.

The Governor also urged continued British support for organisations including the International Monetary Fund alongside the G20 framework.