Bank of England Governor Andrew Bailey has warned that a potential UK-US trade deal will not shield the UK from a broader global slowdown, especially in the wake of new US tariffs under President Trump.
Speaking at the Institute of International Finance in Washington D.C., Bailey emphasized that fragmentation of the world economy would have a negative impact on global and UK growth.
Bailey’s remarks suggest the BoE is shifting its focus from inflation concerns to growth risks, increasing the likelihood of further interest rate cuts from the current 4.5%.
Key Quotes and Policy Signals
“We do have to take very seriously the risk to growth,” said Bailey.
He noted that higher global tariffs, even if the UK is less exposed than countries like China or Germany, will still hurt the UK, a highly open economy.
“It’s not just the relationship between the US and UK—it’s also the relationship between the US, UK, and the rest of the world that matters.”
UK Economy Faces Structural Challenges
Bailey acknowledged that the UK economy has been grappling with persistent low growth and weak productivity since the 2008 financial crisis.
He also flagged long-term demographic headwinds, including an ageing population, as additional drags on future growth.
On the labor front, Bailey called for urgent reforms, including training and incentives to address worker shortages.
Pension Fund Reform on the Horizon
Bailey highlighted the potential role of pension funds in boosting UK growth.
The Treasury is expected to unveil new measures in the coming weeks aimed at encouraging pension funds to invest more in the domestic economy.