Impact of U.S. Tariffs on UK Inflation

By David Milliken

LONDON (Reuters) – It remains uncertain whether the proposed higher U.S. tariffs on imports by President-elect Donald Trump will raise or lower inflation in Britain, according to Bank of England policymaker Megan Greene.

"None of us know exactly what those tariffs might look like. We can't even work out which direction tariffs would push inflation, particularly in the UK and also in the euro zone to some degree," Greene mentioned during a panel hosted by the Financial Times.

Trump has suggested blanket tariffs of 10% to 20% on nearly all imports upon his return to the White House in January, promising significant tariffs on Canada, Mexico, and China as well.

Greene, who holds both U.S. and British citizenship, noted that Britain may struggle to balance its trade relationships between the U.S. and the European Union and could ultimately have to make a choice.

Some economists speculate that higher U.S. tariffs, particularly on Chinese imports, may lead to those goods being redirected to Britain at discounted prices.

After opposing the initial rate cut in August, Greene voted with the majority of the BoE's Monetary Policy Committee to reduce interest rates from 5% to 4.75% last month.

During her comments on Thursday, she expressed concerns that inflation might not return to the 2% target within the next three years, influenced by tariff uncertainties, increased employment taxes from the government's last budget, and persistent domestic inflation pressures.

"Services inflation continues to be persistently high, largely driven by robust wage growth. While wage growth is declining, it's not decreasing as swiftly as I would prefer," Greene stated.

In October, British consumer price inflation was recorded at 2.3%, with the Bank of England projecting it to approach 3% next year due to various pressures, including the waning effects of last year’s energy price decreases and the stimulus measures introduced in the budget.

Annual wage growth, excluding bonuses, was captured at 4.8% in the third quarter, marking a two-year low but still above the 3% level deemed consistent with 2% inflation by several MPC members.