Interest rate-setter Swati Dhingra has suggested that President Donald Trump’s tariffs are unlikely to move UK inflation measures despite taking a toll on growth.
The Bank of England held its interest rates at 4.5 per cent last week. External member Dhingra voted alone in favour of a cut in an 8-1 decision.
Speaking at an event in South Africa, Dhingra said President Trump’s previous trade war in 2018 did not move prices as much as analysts had expected, suggesting the impending global trade war would not have as much of an impact on inflation.
“If you look at some of the more recent reports, like the World Development reports and analysis of it, import values in the US dropped, trade value in general across the world dropped, while, if you look at trade quantities, they dropped,” she said at a conference hosted by the South African Reserve Bank.
While UK import prices from the US could be affected, Dhingra believes that the “overall adjustment” in global prices means the pressure would come downwards.
Her speech came after Trump said he would slap a 25 per cent tariff on all car imports.
Some 18.4 per cent of UK automotive exports went to the US in 2023.
She also warned Monetary Policy Committee (MPC) members against hastily reacting to global supply shocks as she urged forecasters to think “outside the box” when evaluating changes to the global economy.
“My main sort of message here is going to be that all of these sorts of changes to the standard toolkits that we have reflected on already during the pandemic and during the Ukraine war, those issues are probably not going to go away,” she said. “At least that’s what the geopolitical developments are telling us.”
“If anything, it’s become more important and more urgent to be thinking of how those toolkits can be evolved to be able to think about these sorts of situations,” she added.
At the interest rates decision in February, Dhingra voted for a 50 basis point cut.
She is believed to be the most dovish member on the Monetary Policy Committee (MPC).
The Bank of England has been particularly pessimistic about the UK’s economic outlook.
Its forecasts say the UK economy will only grow by 0.75 per cent in 2025 – lower than the Office for Budget Responsibility (OBR)’s own figure of one per cent.
It also says inflation will peak at nearly double its 2 per cent target, with prices set to rise by 3.75 per cent around the autumn.
Analysts are more split on whether the Bank of England are set to cut interest rates in May.
Prior to the decision in March, most analysts predicted that the Bank would cut interest rates to 4.25 per cent.
