The Bank of England will focus on the potential impact of US tariffs on UK economic growth if there is a slowdown in global trade, central bank governor Andrew Bailey said Thursday.
“We’re certainly very focused on the growth shock,” Bailey told CNBC’s Sarah Eisen in an interview at the IMF-World Bank’s spring meeting.
Entering the May 8 monetary policy meeting, the central bank will consider a “double-sided discussion” about the impact on tariffs on growth and domestic supply constraints on inflation, Bailey said.
“There are obviously growth issues, but growth is weak… But the big question mark is that it is caused by weak demand, that it is caused by weakness on the supply side,” he continued.
“Of course, unfortunately, inflation has the opposite effect, as the supply side is on the weak side. So we have to balance these two. But I think the trade issue is now a new part of that story.”
Inflation has been discovered to redirect trade exports to other markets, but retaliation by the UK government for US tariffs – pushing up inflation so that he doesn’t seem to stress, inflation could be drawn in either direction by the wider forces.
Bailey didn’t see the UK approaching a recession right now, but added that economic uncertainty was clearly hampering business and consumer trust.
IMF Downgrade
Earlier this week, the IMF downgraded the UK’s 2025 growth forecast from 1.6% to 1.1%, citing the impact of US President Donald Trump’s trade tariffs, increased borrowing costs and increased energy prices.
But economic forecasts are plagued by uncertainty as the country is involved in negotiations with US officials over Trump’s currently suspended, swinging universal tariff policy. The US imposes 25% tariffs on steel, aluminum and automobiles, and 10% collection on other UK exports.
UK policymakers have expressed their hopes of reaching a trade deal with the White House, with US Vice President JD Vance saying there is a “good opportunity” for an agreement.
Bailey told CNBC on Thursday that “it would be very encouraged if the UK were to trade,” but its economy is so open and service-oriented that it was still affected by a wide slowdown in growth and trade.
He also said that market impacts such as energy prices and water rates will increase in inflation from the current 2.6% of future measurements, but bump ups are “not what we saw a few years ago.”
The Bank of England held an interest rate of 4.5% at its March meeting. Trump then shocked the world with the scale of his tariff announcement.
Currently, the market has reduced its BOE reduction to 4% by the August meeting.
