Bank of England deputy governor Clare Lombardelli. — Bloomberg
LONDON: Bank of England (BoE) deputy governor Clare Lombardelli warns that Donald Trump’s sweeping US tariffs will “depress” UK growth but said the impact on inflation is still unclear.
Lombardelli said on Tuesday that UK rate-setters will consider plunging stock markets, heightened uncertainty and weakening growth when they decide whether to cut interest rates again.
“We’ll think about all of that together for our next decision in May. I’m not going to take a position now,” she said on a panel at a Resolution Foundation event on productivity.
“We know the tariffs are likely to depress activity overall,” she said.
“The direction there is relatively clear. On inflation, it depends a lot more on the circumstances of actually how other countries respond.”
Lombardelli is the first BoE rate-setter to speak on trade since the US president announced tariffs on major trading partners, including the United Kingdom last week.
Other officials at the UK central bank, including Megan Greene and Swati Dhingra, have warned that tariffs are likely to lower inflation as countries shut out of US markets, such as China, seek alternative markets for their goods by cutting prices.
Investors have ramped up bets on the BoE easing policy in recent days.
Markets are fully pricing in a quarter-point reduction on May 8 and expect at least two more cuts by the end of the year.
Britain escaped the worst of the Trump’s tariffs, with most of its goods facing a 10% charge on entering the United States.
However, economists expect UK growth and inflation to be impacted by weakening global demand, sinking confidence and trade diversion effects.
US economist Jason Furman, who was also speaking on the panel, said the argument for cutting rates faster in response to the tariffs is stronger in the United Kingdom than in the United States.
Lombardelli said the BoE’s reaction to the upending of the global economic order by the White House will depend on how other countries respond.
While the UK government has kept retaliatory tariffs on the table, it has said it will seek to negotiate with the United States before taking any action.
“Trade is obviously good for productivity and it’s good for growth,” she said. — Bloomberg
