Rachel Reeves needs AI to “move the needle” on economic growth, says the Bank of England governor Andrew Bailey.
Ahead of the Spring Statement, Mr Bailey highlighted the barriers to economic growth in the UK, including Donald Trump’s tariff wars and an ageing population.
He said: “We face a necessary challenge to raise the potential growth rate of the economy. There are strong headwinds.
“The combination of technology and trade remains an essential route to increasing productivity.”
“I am...of the view that we must facilitate the growth of AI as the most likely general purpose technology which can move the needle on growth in the economy.”
He played down fears that it would replace significant swathes of the population’s jobs, comparing the technology to the industrial revolution.
There was “no doubt transitional pain and suffering at the time” back then, he said, but it “did not lead to mass unemployment, and I do not believe this will be the case with AI”.
The Government believes hundreds of millions of pounds can be saved through the adoption of artificial intelligence.
The Chancellor has made economic growth her No1 priority but the economy is flatlining.
The Office for Budget Responsibility is expected to halve its forecast for UK growth this year from two per cent to around one per cent.
Ms Reeves’ Autumn Budget was heavily criticised for its £25 billion hike in National Insurance contributions for employers which economists say has hit the economy, damaged businesses and is leading to job losses.
Ms Reeves has defended the £40 billion of tax rises, and £30 billion more borrowing, to raise £70 billion in extra spending to repair Britain’s broken public services including the ailing NHS and crisis-hit prisons.
But she will scale back public spending by billions of pounds, due to the blow to the public finances, which will mean significant cuts for some departments.
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The Chancellor’s judgement and reputation will also be in the spotlight on Wednesday, as well as her economic plans, with fresh controversy over her accepting free tickets to a Sabrina Carpenter concert at the O2 Arena in East London.
Mr Bailey also called for global economies to “come together” to help ease trade tensions, amid a mounting tariff war brought about by Trump’s policies.
The Bank’s Monetary Policy Committee voted to hold interest rates at 4.5% earlier in March, as policymakers warned that uncertainty over trade had intensified following new US tariffs.
Trump has imposed tariffs on UK and EU steel and aluminium imports, as well as on Canada, China and Mexico in recent weeks, leading to a wave of retaliatory tariffs around the world.
The MPC said there were risks to the economic outlook for the UK, and uncertainties about how the policy changes could affect inflation.
Mr Bailey added that trade was also a key part of overcoming faltering UK economic growth.
The Tories have accused Ms Reeves of having to resort to an “Emergency Budget” after the blows from her autumn Budget.
She insists that the main impact on the public finances is from a “changing world”, particularly Trump’s tariffs.
