LONDON — Britain’s economic growth is likely to take a hit from U.S. President Donald Trump’s tariffs, which represent the “most significant change” in trade policy in 100 years even after Wednesday night’s U-turn.
That was the message from Bank of England Deputy Governor Sarah Breeden, who warned in a speech Thursday that the central bank believes there is still a high risk of a further sharp correction to risky asset prices, despite markets beginning to recover from the extreme turmoil seen over the past week.
“The U.S. administration has introduced, and subsequently rescinded in part, a wide range of tariffs that together represent the most significant change in U.S. trade policy in a century, even after the changes announced yesterday,” Breeden said, referring to Wednesday evening’s about-turn performed by Trump, who issued a 90-day pause on new tariffs against every country except China.
“Overall, tariffs are likely to lower U.K. growth,” she added. “Expenditure switching by U.S. consumers away from U.K. goods, combined with weaker global demand due to potential counter tariffs and supply chain disruptions would be expected to weigh on U.K. activity.”
But Breeden, who sits on the BoE’s monetary and financial policy committees, said the impact on inflation from the changing trade policy is “not clear cut.”
While the hit to demand for U.K. exports may lower inflationary pressures, Breeden said prices could alternatively end up rising because of supply chain disruption. It is therefore too soon to judge what the Bank’s rate-setters will decide when they next sit on May 8, she added.
“I honestly think it’s too early to say how all of these things will combine,” Breeden said. “The news that we’ve had is significant. It’s a once-in-a -century change in the trading arrangements for the globe, we’ve seen significant changes market prices, in interest rates, and so I really would not want to put my money on taking a decision on interest rates.”
Commenting on the uncertainty coming from the U.S. — just hours prior to reversing his tariffs, Trump had urged onlookers to “BE COOL” in a social media post — Breeden said she would have had “a different set of expectations” in her mind had she delivered her speech yesterday.
“If nothing else, the chilling effect of trade policy uncertainty on firms and on consumers is clear, but I do think we have to do a good job of understanding what the impact on inflation is … It’s a bit early to say, given how much will change between now and our May decision,” the central banker added.
Her words of warning follow the central bank’s financial policy committee issuing a similar caution in a record of recent meetings published yesterday.
“The probability of adverse events, and the potential severity of their impact, has risen,” the committee said.
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