Britain’s economy would benefit from closer ties with the European Union, the governor of the Bank of England has said in a rare intervention on the Brexit debate.

Andrew Bailey said such a move would boost growth, as Andy Burnham prepares to set out options for a new relationship with the EU, including going “all the way” and rejoining the bloc.

His comments come after the bank raised interest rates for the first time in three years on Thursday, in a bid to slow rising inflation. Mr Bailey also warned there could be further rate hikes the longer the war in Iran continues, while the chancellor John Healey said the conflict was “reaching deep into the pockets of families”.

Asked if the prime minister’s idea of a different, closer relationship with the EU could boost UK growth, Mr Bailey told the BBC: “For over a decade now. I’ve been very clear that, as a public official, I do not take a position on Brexit per se.

“Having said that, the broader question that underpins that, which you rightly ask, is: Would the UK being able to trade more openly with its nearest neighbours, to have that trade, to have that market openness, be beneficial for growth in the UK? My view is yes, it would.”

Earlier this week, Mr Burnham said new agreements with the EU, expected to be agreed at a UK-EU summit later this month, would add billions of pounds to the UK economy, boosting GDP by around 0.4 per cent. But that is only a tiny proportion of the estimated 8 per cent hit to GDP as a result of Brexit, according to a study by Nick Bloom, a professor at Stanford University.

revealed earlier this week that UK businesses have had to pay a “staggering” £7.7bn to cover the cost of post-Brexit red tape alone to trade with the EU in just four years, according to new analysis.

Jonathan Portes, economics professor at King’s College London and the former chief economist at the Cabinet Office, told Mr Bailey’s assessment was correct.

He said: “The governor is simply stating the obvious: Brexit has damaged the UK economy and reversing it partially or wholly would boost growth.

“The real question, however, which the governor unsurprisingly dodges, is whether there is any politically feasible halfway house, or whether the real choice is between some version of the status quo and Rejoin.”

Stephen Millard, the deputy director for macroeconomics at the National Institute of Economic and Social Research, said: “I would certainly agree that any move to reduce trade frictions between us and our nearest and largest trading partner has got to be good for productivity and growth.”

Naomi Smith, chief executive of Best for Britain, which campaigns for the UK to restore its EU membership, said there was a “growth rocket-boost on offer from the UK being back at the heart of Europe”.

“As independent modelling has projected, our GDP would be turbocharged by £92bn, at the very least, turning the page on the economic stagnation of the past decade, and opening up a fresh chapter for our country.”

Joe Meighan, from European Movement UK, said the governor’s “recognition that more open trade would boost growth should give the Government confidence to pursue a closer relationship with Europe – removing barriers, supporting British businesses and improving living standards.”

Mr Burnham has already been warned that his “reset” later this month must be a “launch pad” for reversing Brexit. The new agreements with Brussels will see border checks on food and drink stripped away and a new youth mobility scheme, allowing people under 35 the right to live, work or study in Europe with fewer restrictions.

Mr Burnham has said he wants to be “bolder” than his predecessor, Sir Keir Starmer, but has so far stuck to Labour’s manifesto red lines, which prevent agreements on free movement, or rejoining the EU, customs union or single market.

However, he plans to use the summit in Brussels on 20 November to launch a new discussion on the options for the UK beyond the next election, with rejoining the bloc on the cards as a manifesto pledge.

He has also pledged the UK public will be the “boss” of what any future relationship looks like.

As prime minister looks at the way ahead for Britain's relationship with Europe, has been leading the charge, campaigning to secure the absolute best deal for Britain. Become an Independent member for just £1 for six months and join a like-minded community of thousands signed up to our campaign.