Increasing US import tariffs are expected to weigh on British economic growth and put downward pressure on inflation in the medium term, Bank of England policymaker Swati Dhingra said on Thursday. She explained that the tariffs are weakening global demand, which is the main channel and impact on the UK economy.
According to Dhingra, trade disruptions due to tariffs bring indications of slower global growth and reduced price pressures. But she also warned that too high interest rates could stifle productive investment and ultimately trigger long-term inflation problems.
Bank of England Governor Andrew Bailey recently also reminded that the Brexit experience shows the dangers of trade barriers to economic growth. He described Brexit as a warning to the world that economic isolation has long-term negative effects.
The study cited by Dhingra found that the UK’s services sector, which is most vulnerable to Brexit, has recorded a 16% decline in exports to the EU, without any replacement in other markets. Other studies show that Britain’s GDP is now 6%-8% lower and investment is down by up to 18% compared to if the country had remained in the EU.
The UK Budget Office also estimates that Brexit will reduce Britain's long-term productivity by 4%. Analysts say the combined impact of higher US tariffs and the Brexit legacy will continue to weigh on the UK's growth prospects.
