Bailey Warns Trade Deal Won’t Shield UK As Rate Cuts Loom

Bank of England Governor Andrew Bailey has warned that a trade deal with the United States will not be enough to shield the UK from an economic slowdown, as he hinted that further interest rate cuts could be on the cards to stimulate growth.

Speaking at the Institute of International Finance in Washington DC, Mr Bailey cautioned that rising global tariffs pose a significant threat to the UK economy — even if Britain is less exposed than export powerhouses like China and Germany.

“We do have to take very seriously the risk to growth,” he said. “Fragmenting the world economy will be bad for growth.”

His comments mark a shift in focus from the Bank’s recent emphasis on fighting inflation, signalling a growing concern among policymakers over the impact of protectionist trade measures on global and domestic economic prospects.

This shift in stance suggests the Bank could lower interest rates further from the current level of 4.5pc if growth continues to falter. Economists are also expecting the Bank to downgrade its growth forecasts next month.

When asked whether the UK might “escape some of the worst tendencies” of a possible Trump administration due to hopes for a trade agreement and relatively lower tariffs, Mr Bailey responded: “You say the UK might escape, I would say yes, in one sense in relative [terms] but of course the UK is a very open economy and therefore it’s not just obviously the relationship between the US and UK, it’s also the relationship between the US, UK and the rest of the world that matters here.

“You have to take into consideration growth in the rest of the world... and we do have to take very seriously the risk to growth.”

Mr Bailey also highlighted longer-term structural issues affecting the UK’s economic performance, pointing to a protracted period of stagnation. “We’ve had low growth in the UK since the financial crisis… we’ve had very weak productivity growth… we’ve got a population that is on average ageing,” he said.

He noted that pension funds could play a vital role in revitalising growth, ahead of Treasury proposals expected in the coming weeks to encourage greater domestic investment by pension schemes.

Addressing concerns over workforce shortages, Mr Bailey stressed the importance of training and incentives to strengthen the labour market. “We need to take this problem very seriously,” he said. “We must ensure workers have all the right training and incentives.”

Mr Bailey’s remarks come as UK policymakers grapple with sluggish growth and increasing uncertainty in global trade dynamics, amid speculation about the direction of US policy under a potential second Trump presidency.

Source: The Telegraph