The Bank of England focuses on the potential impact of American tariffs on the economic growth of the United Kingdom in the event of a slowdown in world trade, the governor of the central bank Andrew Bailey said on Thursday.
“We are certainly quite focused on the growth shock,” Bailey told Sara Eisen from CNBC in an interview during the Spring meetings of the IMF-World Bank.
By entering its monetary policy meeting on May 8, the central bank will examine the “arguments on both sides” around the impact of prices on growth and internal supply constraints on inflation, said Bailey.
“There is clearly a growth problem with which we are starting, with weak growth … But a big question mark is to know what part is caused by low demand, what part is caused by one side of the low offer,” he continued.
“Because the side of the weak offer, of course, has the kind of upward effect on inflation. So we have to balance these two. But I think the commercial problem is now the new part of this story.”
Inflation could be driven in both directions by wider forces, with redirection of commercial exports to other disinfusionary markets, but reprisals on American prices by the British government – which he stressed was not likely – pushing inflation.
Bailey added that he had not seen the United Kingdom as close to a recession at present, but that it was clear that economic uncertainty weighed on the confidence of business and consumers.
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However, economic forecasts remain embellished in uncertainty while countries engage in negotiations with US officials on Trump’s universal tariff policy, currently on break. The United States has imposed 25% prices on steel, aluminum and cars and a 10% levy from other British exports.
British decision-makers expressed the hope of concluding a commercial agreement with the White House, the American vice-president JD Vance saying that there was a “good luck” of an agreement.
Bailey told CNBC on Thursday that he would be “very encouraged if the United Kingdom concludes an agreement”, but that its economy was very open and focused on services, so it would always be affected by a wider slowdown in growth or trade.
He also noted that inflation would increase compared to the current 2.6% in the upcoming readings due to the effects of markets such as energy prices and water bills, but that the bump would be “nothing like what we have seen a few years ago”.
The Bank of England held 4.5% interest rates at its March meeting, before Trump shocked the world to the scale of its price ad.
The markets are now seeing BOE reduction rates at 4% by its August meeting.
