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The Governor of the Bank of England, Andrew Bailey, has described Britain’s trade deal with the US as “good news,” although he noted that the effective tariff rate remains higher than it was before the trade tensions escalated under Donald Trump’s administration.
Speaking at a conference in Reykjavik, Bailey highlighted the uncertainty caused by the ongoing trade war and emphasized that the impact on the UK economy would be influenced by other countries’ agreements with the US.
The Bank of England recently lowered its benchmark interest rate to 4.25 per cent, citing forecasts that suggest the global trade conflict will have a negative effect on the UK’s economic outlook. Bailey acknowledged that while the deal with the US is positive news, it may still result in higher tariffs for the UK.
The central bank’s latest projections indicate a potential 0.3 per cent decrease in UK GDP due to global trade tensions in the coming years. Despite this, the BoE anticipates economic growth of 1 per cent in 2025 and 1.25 per cent in 2026.
Although the UK secured a trade deal with the US involving reductions in tariffs on certain exports, businesses across the country are hesitant to invest due to the prevailing uncertainty in the global trade landscape.
During the recent Monetary Policy Committee meeting, two members advocated for a larger interest rate cut to address trade uncertainties, while others opted for a more conservative approach. Bailey supported the majority decision to lower the interest rate to 4.25 per cent.
In light of the trade challenges, Bailey acknowledged the rationale for a more significant rate cut but cautioned against overreacting as domestic factors primarily drive inflation in the UK.