Donald Trump’s global tariffs on US imports will depress economic activity, a top Bank of England official has warned, while adding that the impact on inflation will be more difficult to untangle for policymakers.
Clare Lombardelli, deputy governor, said on Tuesday that the US president’s policies were increasing uncertainty as well as affecting asset prices, in the first comments from a senior BoE figure since Trump’s April 2 tariffs announcement.
Investors have hardened their bets on a series of additional UK interest rate cuts this year, with markets pricing a further quarter-point reduction in May from 4.5 per cent now, and more reductions to come later in the year.
“We know the tariffs are likely to depress activity overall,” Lombardelli told an event hosted by the Resolution Foundation think-tank. “The direction there is relatively clear. On inflation it depends a lot more on the circumstances of actually how other countries respond, how that feeds through to the UK.”
Lombardelli declined to spell out how Trump’s policies would affect decisions on interest rates. She said the implications for the UK would be brought together by the BoE’s Monetary Policy Committee in its May meeting.
Earlier, chancellor Rachel Reeves said the BoE had reassured her that markets were “functioning effectively” and Britain’s banking system was resilient, but that the import taxes would have major implications for the global economy.
Acknowledging the anxiety felt by many British households and businesses, Reeves told them: “We have your backs.”
Trump’s fresh tariff regime, unveiled last Wednesday, “has had — and will continue to have — huge implications for the world economy”, Reeves said in the House of Commons.
But BoE governor Andrew Bailey had “confirmed that markets are functioning effectively and that our banking system is resilient”, she added, with UK financial authorities continuing to monitor reaction in the global markets “closely”.
Trump’s trade war is hitting the UK at a time when its economy has barely grown in recent quarters. The Office for Budget Responsibility, the fiscal watchdog, last month halved its growth forecast for this year to just 1 per cent even before the full extent of the US policies was clear.
Reeves reiterated that her fiscal rules remained “non-negotiable”, despite growing pressure from some Labour MPs to loosen the constraints on borrowing, as she attempted to further reassure markets.
“All of the decisions that we make as a government will be underpinned by the stability of our non-negotiable fiscal rules,” she said.
Speaking to MPs separately, Sir Keir Starmer confirmed that Britain was not about to retaliate against the US tariffs. “My instinct is that we should not jump in with both feet to retaliate,” the prime minister said.
Some Labour MPs have questioned in recent days whether Starmer has a sufficiently bold set of policy solutions to address what ministers claim is the “end” of globalisation.
Starmer told the Commons liaison committee: “Our plans don’t so much change as turbocharge.” He said existing policies, including setting out a “modern industrial policy” and plans to strike new trade deals, would be accelerated.
Reeves in the Commons said she would meet US Treasury secretary Scott Bessent “shortly”. The meeting is expected to take place in the coming weeks, but no further details on the timing or location have been confirmed.
Trump said on Monday that Japan was sending a team to Washington to negotiate on trade, suggesting Tokyo was first in the queue to open talks on tariff rates.
Japanese exports have been slapped with a 24 per cent US tariff, a higher rate than the 10 per cent imposed by America on UK exports. But both nations’ automotive industries are facing damaging 25 per cent US tariffs on vehicles.
Speaking in parliament, Reeves said the UK Treasury was among a number of Whitehall departments that were in “ongoing” discussions with the US government in response to the imposition of tariffs.
“The focus is on reducing tariff and non-tariff barriers to trade, with a particular focus on those sectors that are subject to the higher tariffs . . . on cars, on steel and potentially on life sciences,” which are among Britain’s biggest export markets, Reeves said.
She declined to support an idea proposed by Daisy Cooper, Liberal Democrat Treasury spokesperson, for the UK government to back a “buy British campaign”.
“In terms of ‘buying British’, I think everyone will make their own decisions. What we don’t want to see is a trade war, with Britain becoming inward-looking,” Reeves said.
