Britain faces an “acute challenge” from its weak underlying economic growth and a drop in the number of workers since the pandemic, according to the Bank of England governor, Andrew Bailey.
A rise in the number of people defined as long-term sick and a big drop in young people in work – factors that he suggested might be intertwined – added to the squeeze created by an ageing population.
This increased the need for efforts to boost economic productivity, Bailey told the gathering of leading policymakers in Jackson Hole, Wyoming, at the weekend.
The emphasis needed to be on raising productivity growth, Bailey said. “Ageing is not going to turn around in the foreseeable future.” By 2040, 40 per cent of the UK population will be older than 64, he added.
He said the Bank of England had turned its focus away from long-term trends in unemployment to look instead at levels of labour force participation.
Official data shows that the percentage of 16- 64-year-olds active in Britain’s labour market is lower than before the Covid-19 pandemic, unlike in other advanced economies. Mental health was the most common reason for being inactive, a point he described as “a very concerning development”.
Bailey added that there were caveats around the data, including a low response rate and the possibility that the economically inactive might be more likely to take part in official surveys.
But he did not think this factor explained all the decline. “Data caveats aside, this is a pretty sad story for the UK because … we are well at the bottom of the league table,” he said.
The government has pledged to boost labour force participation and economic growth, but earlier this year MPs rejected reforms to disability benefits, which some analysts say discourage people from work.
Data for the second quarter of 2025 showed that 21% of Britons aged 16-64 are neither in work nor actively seeking a job, down from a peak of 22.2% last year but above a low of 20.3% before the pandemic.
Reduced labour force participation is one reason why some Bank of England policymakers fear that Britain’s inflation rate – the highest in the G7 at 3.8% in July – may be slow to return to its 2% target.
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The latest official data showed the UK economy grew at a faster rate than expected in the second quarter, despite a slowdown from a strong start to the year amid pressure from tax increases and Donald Trump’s global trade war.
The Office for National Statistics figures showed that growth in gross domestic product slowed to 0.3% in the three months to the end of June, down from a rate of 0.7% in the first quarter.
Although it beat forecasts by City economists for a slowdown to 0.1%, the weak reading underscores the challenge for the chancellor, Rachel Reeves, as she considers options for boosting the economy and raising revenues at her autumn budget.