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The Bank of England is focused on the potential impact of U.S. tariffs on U.K. economic growth if there is a slowdown in global trade, the central bank’s governor Andrew Bailey said Thursday.<\/p>\n
“We’re certainly quite focused on the growth shock,” Bailey told CNBC’s Sara Eisen in an interview at the IMF-World Bank Spring Meetings.<\/p>\n
Going into its May 8 monetary policy meeting, the central bank will consider “arguments on both sides” around the impact of tariffs on growth and domestic supply constraints on inflation, Bailey said.<\/p>\n
“There is clearly a growth issue we start with, with weak growth … but a big question mark is how much of that is caused by the weak demand, how much of it is caused by a weak supply side,” he continued.<\/p>\n
“Because the weak supply side, of course, unfortunately, has the sort of the upside effect on inflation. So we’ve got to balance those two. But I think the trade issue is now the new part of that story.”<\/p>\n
Inflation could be pulled in either direction by wider forces, with a redirection of trade exports into other markets being disinflationary, but a retaliation on U.S. tariffs by the U.K. government \u2014 which he stressed did not appear likely \u2014 pushing up inflation.<\/p>\n
Bailey added that he did not see the U.K. as being close to a recession at present, but that it was clear economic uncertainty was weighing on business and consumer confidence.<\/p>\n<\/div>\n
The IMF earlier this week downgraded<\/a> its 2025 growth forecast for the U.K. to 1.1% from 1.6%, citing the impact of U.S. President Donald Trump’s trade tariffs, higher borrowing costs and increased energy prices.<\/p>\n However, economic forecasting remains mired in uncertainty as countries engage in negotiations with U.S. officials over Trump’s swingeing universal tariff policy<\/a>, currently on pause. The U.S. has imposed 25% tariffs on steel, aluminum and autos and a 10% levy on other British exports.<\/p>\n U.K. policymakers have expressed hopes of reaching a trade deal with the White House, with U.S. Vice President J. D. Vance saying there is a “good chance”<\/a> of an agreement.<\/p>\n Bailey told CNBC on Thursday that he would be “very encouraged if the U.K. does make a deal,” but that its economy was very open and services-oriented, so it would still be impacted by a wider slowdown in growth or trade.<\/p>\n He also noted that inflation would increase from the current 2.6% in the coming readings due to effects from markets such as energy prices and water bills, but that the bump up would be “nothing like what we saw a few years ago.”<\/p>\n The Bank of England held interest rates at 4.5%<\/a> at its March meeting, before Trump shocked the world with the scale of his tariff announcement.<\/p>\n