The “serious consequences” for the global economy stemming from disrupted trade patterns, largely due to Donald Trump’s policies, are making the future of UK interest rates more uncertain, according to Bank of England Governor Andrew Bailey. He told MPs that the system of lower tariffs through trade agreements has been “blown up.”
This global economic fragmentation is manifesting as delayed investment decisions among UK businesses, as they grapple with the uncertainty of “on-off tariffs.” Bailey underscored that the negative impact on world growth and activity directly affects the UK as an open economy.
However, Bailey maintains his expectation for a decline in UK wage growth in the coming months, which could provide the Monetary Policy Committee with greater confidence to implement further rate cuts. He noted that wage settlements are projected to be around 3.7% to 3.8% by year-end.