Bank of England Governor Andrew Bailey has highlighted AI as a potential catalyst for economic growth, drawing comparisons to past technological transformations such as electricity. In a speech at the University of Leicester, he suggested that AI could help lift long-term growth rates and improve national income at a time when the UK economy remains sluggish.
“AI appears to me to have that potential, and so it could over time lift growth rates and per capita national income,” Bailey stated.
AI’s role in boosting economic productivity
The UK has struggled to regain economic momentum since the 2008 financial crisis, with weak productivity growth exacerbating fiscal challenges. Between 2010 and 2019, UK productivity grew by just 0.3% annually, compared to 2% before the crisis. This slowdown has placed additional strain on public finances, with Chancellor Rachel Reeves expected to announce spending cuts to manage fiscal deficits.
Bailey suggested that AI could be instrumental in overcoming these structural issues but stressed the need for investment in workforce skills to maximise its benefits. “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 said.
The potential for AI to drive economic expansion comes as the Bank of England maintains its tight monetary policy stance. The central bank has kept interest rates at a 16-year high of 5.25%, following a series of rate hikes aimed at controlling inflation. Although inflation has moderated from its peak of 11.1% in October 2022 to 3.4% in February 2025, policymakers remain cautious about lowering rates, fearing renewed price pressures.
Bailey’s remarks on AI coincide with heightened market speculation over the Bank of England’s next move. Businesses and investors are closely monitoring whether rate cuts will materialise in the coming months, as lower borrowing costs could provide much-needed stimulus. However, the central bank has signalled that any policy adjustments will depend on further progress in reducing inflation to its 2% target.
The uncertainty surrounding interest rates has fuelled concerns about investment and consumer spending, prompting discussions on alternative avenues for economic growth. Bailey’s emphasis on AI reflects a broader effort to identify long-term solutions beyond monetary policy.
AI’s adoption is expected to reshape industries by automating tasks, improving efficiency, and driving cost reductions. According to a 2023 PwC report, AI could contribute up to £232bn to the UK economy by 2030, increasing GDP by 10.3%. However, concerns persist regarding its impact on employment and wage distribution.
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