Bank of England Deputy Governor Sarah Breeden recently addressed the potential economic ramifications of newly implemented US tariffs. Her remarks highlighted the significant implications of these trade measures on the global economic landscape.
**Economic Outlook and Risks:**
Breeden emphasized that recent developments, particularly the imposition of US tariffs, are expected to have a material impact on the economic outlook and associated risks. She noted that the global economic environment has evolved considerably since the Monetary Policy Committee (MPC) meeting in March.
**Significance of US Tariffs:**
According to Breeden, the US tariffs represent the most substantial shift in trade policy witnessed in a century. The long-term implications and overall structure of these tariffs remain uncertain, creating a challenging environment for economic forecasting.
**Impact on UK Growth and Inflation:**
The Deputy Governor suggested that the tariffs are likely to exert downward pressure on UK economic growth. However, the impact on inflation is less definitive. While the Sterling has not yet weakened in response to the tariffs, Breeden acknowledged that this could change. She stated that it is currently premature to assess the overall impact on UK inflation and, consequently, the appropriate monetary policy response.
**Financial Market Volatility:**
Breeden also commented on the volatility observed in government bond yields. The Bank of England assesses that the risk of a further sharp correction in risky asset prices remains elevated.
**UK Banking System Resilience:**
Despite potential economic headwinds, Breeden reassured that the UK banking system possesses the capacity to continue supporting the economy, even in the event of a significant deterioration in economic conditions.
