How might the UK economy by impacted by tariffs?published at 19:38 British Summer Time
Dharshini David
Deputy economics editor
A UK-based reader asks: Would these tariffs affect our economy and current interest rates?
The decisions made thousands of miles away will affect our economy. Most directly affected are those exporters selling into America, contending with that 10% extra charge (or even more in some cases) being applied to their goods: do they try to compensate for that by cutting costs elsewhere – or risk a blow to sales?
And complex supply chains means that disruption to other economies could be felt here. The Bank of England Governor, Andrew Bailey last week referred to a “growth shock” – many economists have cut their forecasts. No one yet is clear on how this trade war will play out, the uncertainty itself is damaging.
But the impact on inflation could work the other way. Countries such as China may be tempted to divert goods here instead, given the barriers they face in America. And the drop in oil and other commodity prices, amid market turmoil, could also bode well for keeping bills down.
So many economists reckon that with a weaker growth and inflation outlook, interest rates could fall faster than previously thought. A cut of 0.25 percentage points is widely expected next week, another could follow in June.