UK interest rates are facing a dual challenge: the unpredictable nature of Donald Trump’s trade policies and the broader fragmentation of the global trading system, both of which introduce significant uncertainty, according to Bank of England Governor Andrew Bailey. He told MPs that while a downward path is expected, the speed is now less clear.
Bailey highlighted the negative impact of a “fragmenting world trading system” on global growth and activity, noting that this is causing UK businesses to delay investment. He lamented that a long-established system of lower tariffs has been “blown up.”
Despite these external pressures, Bailey still anticipates a decline in UK wage growth in the coming months. This domestic factor could provide the Monetary Policy Committee with more confidence to cut rates, offering a potential offset to the global trade headwinds.