Bank of England's Bailey says UK has 'acute challenge' over weak growth

JACKSON HOLE, Wyoming (Reuters) -Britain faces an "acute challenge" over its weak underlying economic growth and reduced labour force participation since the COVID-19 pandemic, Bank of England Governor Andrew Bailey said on Saturday.

Speaking at an annual conference in Wyoming organised by the U.S. Federal Reserve, Bailey said an ageing population and an apparent illness-driven drop in working by younger Britons increased the need for efforts to boost economic productivity.

"Going back to this question about potential growth rates, that puts even more emphasis on raising productivity growth," he said. "Ageing is not going to turn around in the foreseeable future."

Bailey said the central bank had turned its focus away from long-term trends in unemployment to looking at levels of labour force participation instead.

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.

Bailey said there were big 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 said 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.

Britain's Labour government has pledged to boost labour force participation and economic growth, but earlier this year its lawmakers rejected reforms to disability benefits which some analysts say discourage people from work.

Data for the second quarter of 2025 showed that 21.0% 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 BoE policymakers fear that Britain's inflation rate - the highest in the Group of Seven advanced economies at 3.8% in July - may be slow to return to its 2% target.

Bailey did not directly address the policy outlook in his remarks, made in a discussion about labour market challenges with European Central Bank President Christine Lagarde and Bank of Japan Governor Kazuo Ueda.

(Reporting by Howard Schneider, writing by David Milliken; editing by Diane Craft)