Higher tariffs, US policies may reduce UK growth, inflation: BOE
Higher tariffs and more uncertain US trade policies will likely reduce growth and inflation in the United Kingdom due to low demand and trade diversion from decreasing exports by the rest of the world to the United States, Bank of England (BOE) deputy governor Clare Lombardelli recently told the central bank's Watchers' Conference in London.
Inflation pressures continued to fall in the country, though wage growth remains too high to be consistent with hitting the bank's 2-per cent target, Lombardelli said.
BOE deputy governor Clare Lombardelli warned that higher US tariffs and trade policy uncertainty could slow UK growth and raise inflation risks due to weaker global demand. While UK inflation pressures are easing, wage growth remains high. Lombardelli supported a recent rate cut to 4.25 per cent and noted the central bank is ready for stronger action if tariff impacts worsen.
"In the longer term, if global trade were to fragment, this would reduce output and productivity and would raise inflationary pressures," she cautioned.
Lombardelli said she was 'balanced' about her own decision, but further gradual progress on disinflation and trade developments led her to vote to cut. The central bank last week cut its key rate to 4.25 per cent from 4.5 per cent, according to British media reports.
The central bank indicated it would be prepared for more aggressive moves should the hit to growth from tariffs prove more severe than anticipated.
'The exchange rate movements we have seen further support lower imported inflation to the UK, although exchange rates can shift in response to trade policy news and the evolution of global risk sentiment. In the longer term, if global trade were to fragment, this would reduce output and productivity and would raise inflationary pressure,' she said.
Fibre2Fashion News Desk (DS)
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