Bank of England Governor Andrew Bailey has stated that Donald Trump’s “on-off tariffs” are undermining the stability of the global trading system and, consequently, adding significant uncertainty to the future of UK interest rates. He conveyed to the Treasury select committee that the previous pattern of trade deals leading to lower tariffs has been “blown up.”
This disruption is having tangible negative effects on the UK economy, with businesses reporting that they are pausing investment due to trade barrier uncertainties. Bailey stressed that the fragmentation of the world trading system is detrimental to global growth and activity, impacting the UK as an open economy.
Despite these external pressures, Bailey maintains his expectation that UK wage growth will decline in the coming months. This anticipated moderation in wage settlements is a key factor that could provide the Monetary Policy Committee with the confidence to pursue further interest rate reductions.
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