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UK growth will be hit by the “chilling effect” of uncertainty caused by Donald Trump’s trade war, a top Bank of England policymaker has warned, as markets gyrate in the wake of the US president’s partial retreat on tariffs.
Sarah Breeden, deputy governor for financial stability at the BoE, said on Thursday that “overall, tariffs are likely to lower UK growth”, but added that it was too soon to untangle the inflationary implications stemming from the barriers.
“If nothing else, the chilling effect of trade policy uncertainty on firms and consumers is clear,” Breeden said during an online panel hosted by MNI, a market news and data provider. “I would expect tariffs to lower economic activity as barriers to trade inherently weigh on global demand.”
Trump put his most aggressive tariffs on hold on Wednesday, but has maintained a 10 per cent baseline global levy that has ensnared the UK and kept his punitive tariffs on China. Tariffs of 25 per cent on US imports of steel, aluminium and cars also remain.
The US president’s trade barriers have prompted traders to harden their bets on BoE interest rate cuts this year, including a quarter-point reduction at its May meeting.
Breeden said she would not make a decision “on the hoof” about how UK monetary policy should respond to the trade barriers. She cited uncertainty over the consequences for inflation, exchange rate movements and supply chain disruptions: “The answer on inflation is not clear-cut.”
The comments came as British officials said they were continuing to try to persuade Trump to cut tariffs on the UK, with an initial focus on the 25 per cent levy on cars that hits UK luxury brands such as Jaguar Land Rover and Aston Martin.
Sir Keir Starmer’s allies were surprised at how quickly Trump retreated in the face of market turmoil. One said: “We thought they would need some time to come back down to earth, but the assumption was it would take weeks. In fact it has taken days.”
Starmer on Thursday said that his government would “not sit back and hope” and would bring forward policies to strengthen the economy. “I’m not going to stand here and pretend that tariffs are good news,” he said.
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There is pessimism among some UK officials on whether any new “economic deal” with the US is likely to materialise soon, in part because Trump is focused on countries that run large trade surpluses with the US. The UK and US have a comparatively small, and balanced, trade in goods.
Any deal could also leave Starmer politically exposed if he is perceived to have given away too much. Britain has offered to water down its digital services tax, which hits US tech firms, drawing criticism from his political opponents.
Jamieson Greer, US trade representative, on Wednesday suggested that any deal would require Britain to water down its food standards — a move that Starmer has already rejected.
“I’ve certainly expressed my concern that the UK has barriers, especially in the ag space, that are very important to us,” Greer said at a congressional hearing. Britain bans the import of US hormone-treated beef and chlorine-washed chicken.
