LONDON — The economic landscape of Britain may face challenges due to tariffs enacted by U.S. President Donald Trump, which have been described as the “most significant change” in trade policy in a century, despite a recent retraction of some measures.
This warning was issued by Sarah Breeden, Deputy Governor of the Bank of England, during a speech on Thursday where she highlighted the central bank’s concerns regarding a potential sharp correction in risky asset prices, even as markets show signs of recovery following a turbulent week.
Significant trade policy shifts
Breeden remarked, “The U.S. administration has introduced, and subsequently rescinded in part, a wide range of tariffs that together represent the most significant change in U.S. trade policy in a century, even after the changes announced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,” referring to Trump’s announcement of a 90-day pause on new tariffs against all countries except China.
She further elaborated on the implications for the U.K. economy, stating, “Overall, tariffs are likely to lower U.K. growth.” The Deputy Governor explained that changes in consumer spending patterns in the U.S., alongside diminished global demand from potential counter tariffs and disruptions in supply chains, are expected to negatively impact U.K. economic activity.
Uncertain inflation outlook
While discussing the potential impact of this evolving trade policy on inflation, Breeden noted that the situation is complex. Although reduced demand for U.K. exports could ease inflationary pressures, potential supply chain disruptions might lead to price increases. As such, she emphasized that it is premature to predict how the Bank’s rate-setting committee will approach decisions in their upcoming meeting on May 8.
“I honestly think it’s too early to say how all of these things will combine,” Breeden stated. “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.”
In light of the uncertainty from the U.S., highlighted by Trump’s recent social media plea to “BE COOL” just hours before reversing his tariff policies, Breeden acknowledged that her expectations would have been different had she delivered her remarks the previous day. She underscored the clear chilling effect that trade policy uncertainty has on both firms and consumers.
Breeden concluded by stressing the need for careful analysis to ascertain the true effects of these developments on inflation, indicating that much is likely to change before the Bank’s May decision. Her cautionary statements align with recent communications from the central bank’s financial policy committee, which noted an increased probability of adverse events and the potential severity of their impacts.