“Blown Up” Trade System Puts UK Rate Path in Doubt, Says BoE’s Bailey

The Bank of England’s governor, Andrew Bailey, asserts that the global trading system, once characterized by declining tariffs, has been “blown up” by recent policy shifts, introducing significant uncertainty into the UK’s interest rate outlook. He conveyed this concern to the Treasury select committee, acknowledging a prevailing downward pressure on rates but with an unclear timeline.
This disruption in trade patterns is having a tangible impact on UK businesses, with some freezing investment plans due to unpredictable trade barriers. Bailey highlighted the detrimental effects of global trade fragmentation on economic growth and activity worldwide, noting its direct influence on domestic business confidence.
Despite the external headwinds, Bailey continues to expect a softening of wage growth in the UK, a development that could bolster the Monetary Policy Committee’s confidence in pursuing further rate cuts. He specifically pointed to survey data suggesting wage settlements could fall to 3.7%-3.8% by year-end.