Impact of US Tariffs on UK Economy Remains Limited Bank of England Chief Economist Says

American tariffs imposed on the UK are unlikely to cause significant disruption to the British economy, according to Huw Pill, the chief economist at the Bank of England. Despite a recent trade agreement with Washington that altered certain tariff structures, the overall impact is expected to have minimal influence on inflation and economic growth.

The UK successfully negotiated lower tariffs on steel and aluminium, reducing them to zero, while US tariffs on British cars were cut from 27.5 per cent to 10 per cent on a quota of 100,000 vehicles. Similarly, the UK agreed to reduce import duties on ethanol and allow greater access to US beef exporters. However, the 10 per cent universal tariff on most goods remains unchanged, which limits the broader economic benefits of the deal.

Huw Pill highlighted that while such trade agreements could create some advantages through specific channels, their impact on the UK as a whole will likely be modest. He explained that any potential knock-on effects from tariffs on other jurisdictions would also need consideration, given they may influence trading partners and, subsequently, the UK economy.

From a monetary policy standpoint, the Bank of England remains primarily focused on understanding how these trade measures could affect inflation over the next two to three years. Currently, consumer price inflation is at 2.8 per cent and is forecast to rise to 3.5 per cent in the coming months. The Bank maintains an expectation that the inflation target of 2 per cent will be achieved by early 2027.

Andrew Bailey, Governor of the Bank of England, previously affirmed that broader trade relationships, such as improved ties between the UK and the European Union or a comprehensive US-China agreement, could provide more substantial economic benefits than the recent limited deal with the United States. Nonetheless, the Bank will proceed with its decisions irrespective of trade uncertainties to ensure inflation remains on target.

This week, the Bank’s Monetary Policy Committee showcased divergence in its rate-setting strategy. Huw Pill voted to keep the base rate steady at 4.5 per cent, while five members supported a reduction to 4.25 per cent. Two other committee members advocated for an even greater cut to 4 per cent. This disagreement reflects the complexity of balancing trade impacts, inflation, and broader economic conditions in policy decisions.