Warning to the United States! Bank of England Governor Manin: Brexit and trade policy exacerbate long-term depreciation trend of the pound and inflation risks.

Policy maker of the Bank of England (BOE) Catherine Mann stated that Brexit and the policies of former Prime Minister Liz Truss have led to a decrease in the UK's economic competitiveness, slowed growth, and a higher risk of inflation. Speaking at the "Monetary Policy Divergence and Currency Wars" conference of the National Association for Business Economics in Philadelphia on Monday, Mann pointed out that since the 1920s, the position of the pound as a global currency has been undergoing a long-term process of erosion. The Brexit referendum in 2016 and the market crash caused by Truss's "mini-budget" in 2022 were key points in this process. She mentioned that the long-standing phenomenon of "de-sterilization" of the pound (loss of sterling reserve currency status) in the UK has implications for the United States' implementation of "anti-establishment policies" under Trump. The gradual decline of the British economy and the pound is like "termites slowly eating away at the foundation, eventually leading to the collapse of the building." Mann believes that crises such as the Suez Crisis in 1956 and the forced exit from the European Exchange Rate Mechanism (ERM) in 1992 weakened investor confidence in the UK market, with the endpoint of this trend being "creditors explicitly stating 'no more loans, accounts closed'." She added that Brexit has disrupted the UK's strong trade ties with the EU, further setting back the UK on the path of "de-sterilization," while also lowering economic growth potential and making the country more susceptible to inflation woes. "In discussing the supply-side issues of the UK economy, one cannot escape the impact of Brexit - the supply side has become a real challenge for the UK economy," Mann said. She also pointed out that the stagnant economic growth potential of the UK "affects the space and direction of my monetary policy decisions." Persistently high inflation Currently, the UK inflation rate is 3.8%, almost double the Bank of England's 2% target. In the past two monetary policy meetings, Mann has voted to maintain the current interest rate level to curb inflation. In a speech last week, she stated that restrictive interest rate policies need to be maintained in the long term to effectively control inflation. Mann further stated on Monday, "We can also delve into how Brexit has changed the pound's 'unit of account' attributes - the pricing function of the pound in import and export trade has significantly weakened. And all these discussions ultimately revolve around the point mentioned multiple times today: Liz Truss and the collapse of fiscal discipline." In 2022, the large-scale spending budget introduced by former Prime Minister Truss triggered a market crash, not only causing the UK to lose fiscal credibility but also leading to a "borrowing premium" on UK assets (investors demanding higher returns to compensate for risk). Currently, the "premium" status of UK government bonds remains unchanged. Mann emphasized that looking back on the five key events the UK has experienced in the past 100 years (erosion of pound status since the 1920s, Suez Crisis in 1956, exit from ERM in 1992, Brexit in 2016, Truss budget crisis in 2022), the core lesson is that currency crises are not sudden shocks but progressive erosion caused by policy mistakes. "This is something to be wary of," she said. "Whether it is fiscal policy choices, the lack of coordination between monetary policy goals and exchange rate targets, or the disruption of global trade relations and global financial discipline, they could all lead to similar long-term risks."