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BOE’s Mann Says UK Economy Would Be Hit by Global Trade Tensions

Catherine Mann, member of the monetary policy committee at the Bank of England. (Hollie Adams/Photographer: Hollie Adams/Bloom)

(Bloomberg) -- Bank of England rate-setter Catherine Mann warned that shockwaves from a global trade war sparked by Donald Trump would hit UK growth and inflation.

Mann said on Thursday that even uncertainty over trade policy could have “damaging economic effects and increase volatility,” as she reiterated her hawkish stance against interest-rate cuts.

She said that fragmentation in the world economy would “likely put upward pressure on costs and prices, but monetary policy decisions will also need to consider the channel of reduced productivity growth.”

Mann is the latest policymaker to warn of the economic fallout from a trade war after Trump was elected as US president on a promise to put tariffs on swathes of goods imports. 

While the UK is one of the major economies less directly exposed to a trade skirmish targeting goods, economists have warned that growth could still be dampened by any tit-for-tat tariffs exchange. BOE policymakers would need to balance the inflationary effect of any trade war with the disinflationary impact from a weaker economy.

“Uncertainty about trade policy in itself may have damaging economic effects and increase volatility,” Mann said in a speech at the Society of Professional Economists annual conference. 

“The latest political developments across the Atlantic have not made a disorderly trade scenario less likely, which would have consequences for output and inflation in the UK.”

Mann said protectionism, climate change and a more expansionary fiscal policy are among the threats that could mean a more volatile economy. She said that inflation volatility will likely mean higher interest rates in the long-run.

She said that the “Great Moderation” — the period of stable economies and low inflation before the financial crisis — may have been down to “luck” as well as policymaking.

Mann is the most hawkish rate-setter on the Monetary Policy Committee and was the sole official to vote against last week’s quarter-point cut in the BOE benchmark rate.

She reiterated her caution against rate cuts, saying she prefers an “activist” approach where she waits for more evidence that inflation has been tamed before loosening policy quickly.

“In the current context, an activist stance holds the policy rate firmly until sufficient evidence on diminished inflation persistence is revealed; and then to move forcefully,” she said.

The MPC has guided markets toward a “gradual” easing in policy, prompting traders to fully price in just two more quarter-point rate reductions by the end of 2025. Chancellor Rachel Reeves’ first budget is expected to keep the BOE wary over rushing into more cuts given it is expected to be a boost to inflation.

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