Deputy governor for financial stability Sarah Breeden added that it is ‘not clear-cut’ what effect the new trade policy will have on inflation.
US President Donald Trump’s tariffs are likely to hamper economic growth in the UK but it is “too early to call” the impact they will have on inflation, a Bank of England policymaker has said.
Sarah Breeden, the Bank’s deputy governor for financial stability, said on Thursday that the trade tariffs “would be expected to weigh on UK activity”.
But the impact on inflation is “not clear-cut”, Ms Breeden said, adding that the hit to demand could bring downward pressure while supply chain disruptions could bring upward pressure to inflation.
“Given all of the uncertainties, I think it’s too early to call the overall impact on inflation for the UK, and hence the appropriate monetary policy response at this stage,” she said.
Ms Breeden was speaking after Mr Trump put a 90-day pause on many of the trade tariffs he imposed on most countries earlier in the week.
The tariffs had previously sent financial markets tumbling, and had prompted increased bets that the Bank would cut interest rates at its next policy meeting in May.
The remaining tariffs include a 125% tariff on Chinese goods, and a 10% levy for all countries across the board.
Ms Breeden said the new wave of levies marked “the most significant change in trade policy in a century”.
She said uncertainty over trade policy and broader geopolitics can bring “a chilling effect on business and consumer behaviour, weakening both activity and inflationary pressure”.
“So I would expect tariffs to lower economic activity as barriers to trade inherently weigh on global demand,” Ms Breeden said.
Meanwhile, the response of the value of sterling would also have an impact on whether it is inflationary.
“This too is uncertain and will depend heavily on the decisions of other countries to impose counter tariffs, the evolution of the global risk sentiment and developments in financial markets more broadly,” she said.
A weaker pound could make it more expensive for the UK to import things, which could further add price pressure.
“So far, sterling has not weakened, but it could change,” Ms Breeden said.
