Tariffs Pose “Substantial” Risks to UK and Global Economies, Bank of England Warns

The potential impact of escalating US tariffs on the UK economy, and indeed the global economy, is a cause for serious concern, according to the Governor of the Bank of England, Andrew Bailey. Speaking before MPs, Bailey emphasized that these tariffs could significantly hinder economic growth and present “substantial” risks.

The core issue revolves around the US administration’s recent moves to increase trade tensions, including the implementation of new tariffs on imports from Mexico and Canada, and the doubling of levies on Chinese goods. This protectionist stance, Bailey argued, has the potential to directly impact UK consumers by reducing their purchasing power. He stressed the importance of trade as a driver of growth and innovation, and urged for trade disputes to be resolved through established international frameworks, such as the World Trade Organization, rather than through bilateral negotiations.

The Bank of England’s analysis highlights several potential pathways through which US tariffs could negatively affect the UK. Firstly, tariffs imposed on UK goods exported to the US would create significant challenges for British businesses, making it harder for them to compete in the American market. This could lead to a contraction in UK economic activity. Secondly, the fragmentation of global supply chains, a likely consequence of increased trade barriers, would disrupt established production and distribution networks, further hindering growth and potentially driving up inflation.

The overall consensus within the Bank of England is that the risks associated with these tariffs far outweigh any potential benefits. The uncertainty surrounding the extent and duration of the US tariffs, as well as the potential retaliatory measures from other countries, adds to the complexity of the situation. The Bank fears that these trade frictions could ultimately lead to a slowdown in global economic activity, impacting both businesses and consumers worldwide.

Furthermore, Bailey expressed concern about the potential withdrawal of the US from international institutions such as the International Monetary Fund (IMF) and the World Bank. He argued that such a move would be “very damaging” to the global financial system, emphasizing the importance of multilateral cooperation in addressing economic challenges.

He did, however, welcome the US Treasury Secretary’s stated commitment to multilateralism, signaling a potential avenue for collaborative solutions