While Donald Trump’s trade policies inject uncertainty into the UK’s interest rate outlook, Bank of England Governor Andrew Bailey believes a slowdown in domestic wage growth could still allow for rate cuts. Bailey told MPs that the path for rates is downwards, but the pace is now less clear.
He emphasized the negative impact of a “fragmenting world trading system” on global growth and activity, noting that this uncertainty is causing UK businesses to defer investment. The governor expressed concern that a long-established pattern of trade agreements leading to lower tariffs has been “blown up.”
Despite the external headwinds, Bailey stated he has no evidence to doubt projections of UK wage settlements falling to around 3.7% to 3.8% by the end of the year. This anticipated moderation in wages is a crucial factor for the Monetary Policy Committee in deciding on future interest rate adjustments.
