Megan Greene, an external member of the Bank’s Monetary Policy Committee (MPC), said she believes that the impact of tariffs on inflation is more likely to be disinflationary than inflationary, pointing to their influence in her decision to vote for a 0.25 percentage point base rate cut last week.
The MPC voted 5-4 in May to lower the base rate from 4.5 per cent to 4.25 per cent – its lowest level in two years.
With inflation continuing its downward trajectory – currently sitting at 2.6 per cent – markets now expect three further rate cuts in the months ahead, though policymakers remain cautious.
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She said: “I don’t want to overstate the impact of trade on the UK economy. Around 70 per cent of the UK’s exports to the US are actually services, which aren’t directly impacted by tariffs.
The UK-US trade deal, announced last Thursday, leaves in place Trump’s 10 per cent tariffs on UK exports but makes modest gains for both sides, including expanded agricultural access and lowered US duties on UK car exports.
Greene noted the market’s reaction to these shifts, saying: “Exchange rates haven’t necessarily gone as economic theory would lead you to expect.
A stronger pound could help ease inflationary pressures in the UK by reducing the cost of imports.
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She said: “Tariffs represent a global demand shock. There’s also a channel of trade diversion, which could be on balance, inflationary.
Greene’s stance on inflation contrasts with the more cautious view held by some of her colleagues on the MPC.
While Greene’s decision to support the recent rate cut has been met with mixed reactions, she remains focused on the global trade developments and their influence on the UK economy.
“There are some inflationary factors, but I think on net, there are more disinflationary ones. They’ll all hit the economy at different times, but that’s certainly a risk.”
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