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England Bank Governor Andrew Bailey has said BOE had to “take seriously” risks of growing from Donald Trump’s tariff policies, signaling that the Central Bank is likely to lower interest rates in its future meeting in response to uncertainty on global trade.
“Trade supports growth,” Bailey said in Washington on Wednesday. “The fragmentation of the global economy would be bad for growth.”
The US president announced on April 2, ‘ERITION Liberation Day’ that he would apply a 10 percent “reciprocal” fee in the UK. While this is much lower than 20 percent that Trump aims to apply to the EU and many other trading partners, Bailey said British growth will still be affected.
“The United Kingdom is a very open economy. It is not just the relationship between the US and the United Kingdom – is the relationship between the KBA and the rest of the world,” Bailey said at a conference of the International Finance Institute. He added that this meant that the bank had to “take” the global effects of Trump’s policies seriously.
Traders expect a decrease in the quarter at the next month’s meeting of the bank’s monetary policy committee, set for the beginning of May, according to the levels implied by the exchange markets, and two or three others by the end of the year.
The Trump administration has banned many of the measures discovered on April 2 for 90 days after a major sale in stock markets, US government debt and other dollar assets after the president’s announcement.
While the markets had “operated in the past few weeks”, Bailey said the bank was observing the possibility of a rapid release of the positions of certain market institutions for US treasures.
Huw Pill, the main economist of BOE, said earlier on Wednesday that, given the market instability, if the Central Bank decided that quantitative relief was a means of removing monetary policy, when interest rates hit their lower limit, or was a way to restore order for dysfunctional markets was a “direct question”.
In the past, BOE had launched major programs for buying connections based on the fact that it was better to “use a coaster to hit a nut” rather than risking a full crisis, Pill said. However, recently, BOE’s response to market unrest that followed former Prime Minister Liz Truss’ mini budget, had shown that the most accurate, surgical operations could be just as effective.
A brief postponement of planned bond sales in the fall of 2022 had allowed BOE to “cut the tumor” and restore market function, Pill said. He argued that, in the future, “no matter what we act as a scalpel or as a sledgehammer will become a very important question.”
Additional reporting by Ian Smith and Valentina Romei in London
