Donald Trump’s wide-ranging US tariffs will “depress” UK growth but the impact on inflation is unclear, said Bank of England deputy governor Clare Lombardelli.
The Monetary Policy Committee member spoke at a meeting organised by thinktank Resolution Foundation last night hours before import taxes on around 60 countries set by the US President came into effect.
America has imposed a minimum 10% baseline tariff on imports on countries that trade with the US in a bid to correct trade imbalances.
The UK faces a 10% tariff, the EU has had a 20% tariff imposed on the bloc, China faces 104% of extra import taxes after setting retaliatory charges on the US.
“The tariffs are likely to depress activity,” Lombardelli said during a panel discussion on productivity growth.
But she added the impact on inflation is still unclear.
UK inflation is 2.8%, ahead of the Bank of England’s 2% target, while the base rate is 4.5%.
Lombardelli (pictured) said: “On inflation, it depends a lot more on the circumstances of actually how other countries respond, how that feeds through to the UK.
“But we’ll think about all that together for our next decision in May. I’ll not take a position on that now.”
She added that the nine-member committee of rate-setters will consider plunging stock markets, heightened uncertainty and weakening growth when they decide whether to cut interest rates again at their 8 May meeting.
AJ Bell investment director Russ Mould said: “Investors had initially taken some positives from a willingness in the White House to negotiate with Japan and Israel but an escalation with China triggered another sell-off on financial markets.
“US consumers buy a lot of goods from China, so the 104% tariff could stoke inflation big time.
“Investors are looking for any indication that the US government might blink in the face of the turmoil. For now, there are no signs of a willingness to back down or hit pause on tariffs.
“The longer the situation persists, the harder and more complex it will be to unpick.”
The money market conversation on UK interest rates has changed since the start of the tariff war, from whether rates will be cut next month to how much they’ll come down by.
Traders are betting on a 16% chance of a steeper half-point cut, against an 84% likelihood of a smaller quarter-point drop.
Markets also expect three rate cuts by the end of the year, about one more than before last week’s tariff announcements.
Yesterday, former Bank of England deputy governor Charlie Bean said rate-setters should weigh in with a half-point rate cut next month to combat the “crazy situation” created by Trump’s trade tariffs.
