Andrew Bailey: Growth and regulation

Governor Andrew Bailey of the Bank of England discussed the importance of growth and regulation during a speech at the Mansion House Financial and Professional Services Dinner in London on July 14, 2026. He noted that perceived stability in the economy, following early February remarks, was short-lived due to the outbreak of conflict in the Middle East.

Inflation has not returned to target, and the UK economy, after experiencing lower growth for the past fifteen years, continues to face challenges stemming from supply shocks like Covid, Ukraine war, and Brexit.

Bailey emphasized that sustainable growth depends on an upper limit known as the growth of potential supply, influenced by labor productivity. Over the past fifteen years, UK potential growth rate fell to 1.3%, with productivity contributing 0.4%, and labor supply 0.8%. This decline directly impacted living standards, with the UK's average annual growth rate of national income per head dropping from 2.0% pre-financial crisis to 0.6% post-crisis.

Bailey argued that macroeconomic policy plays a critical role in raising growth rates and stressed the need for stability in monetary and fiscal policies. He highlighted the importance of well-designed regulation in fostering economic growth by correcting market failures, reducing transaction costs, lowering entry barriers, promoting competition, and supporting innovation.

Regulation, according to Bailey, should always be defined with a positive purpose, aiming to achieve specific objectives. The focus should be on assessing whether regulation achieves these objectives rather than engaging in a simplistic "too much or too little" debate. He concluded by touching on three key current policy issues: bank capital levels, payments systems, and Frontier AI, emphasizing the crucial role of regulation in addressing these matters.