Trump’s Trade War Casts Shadow Over UK Economy, Warns Bank of England

By BATV News

A leading official at the Bank of England has warned that Donald Trump’s escalating trade war risks dealing a substantial blow to the UK economy. Sarah Breeden, the Bank’s Deputy Governor, stated that the economic uncertainty sparked by aggressive U.S. trade policies is set to dampen both consumer and business confidence, ultimately weighing heavily on UK growth.

Trade War Ripples Across Global Markets

Breeden’s remarks come amid ongoing volatility in global financial markets, which continue to reel from the disruptive impact of tariffs and shifting trade policies. Speaking at an online event, she emphasized, “Overall, tariffs are likely to lower UK growth. If nothing else, the chilling effect of trade policy uncertainty on firms and consumers is clear.”

The turmoil was evident on Wall Street as optimism faded quickly after a temporary reprieve. Despite a 90-day pause in Trump’s planned tariffs for most countries, markets reversed earlier gains. The Dow Jones Industrial Average tumbled 2.5%, the S&P 500 fell nearly 3%, and the Nasdaq plummeted close to 4%, underscoring persistent investor anxiety.

Europe’s Rally Short-Lived Amid Uncertainty

Initially, European markets responded positively, with London’s FTSE 100 rising 3%, Germany’s DAX climbing 4.5%, and France’s CAC 40 up by 3.8%. However, hopes of a stable resolution were soon overshadowed by fears that the U.S. might proceed with over 100% tariffs on Chinese imports, fuelling concerns over a potential global recession.

Breeden reiterated that protectionist policies, even if temporarily delayed, still undermine economic confidence. “I would expect tariffs to lower economic activity as barriers to trade inherently weigh on global demand,” she said.

Mounting Warnings from the Bank of England

This latest caution marks the third such warning from the Bank in a single week. Clare Lombardelli, another Deputy Governor, previously remarked that tariffs are “likely to depress activity.” Moreover, members of the Bank’s Financial Policy Committee have expressed alarm that the trade war has heightened the risk of a global financial crisis.

The economic tension also manifested in the bond markets. Trump’s initial tariff threats triggered a wave of selling that sent U.S. borrowing costs soaring and lifted UK 30-year bond yields to their highest levels since 1998. Though the 90-day suspension offered temporary relief, U.S. yields began rising again last night, and the dollar weakened amid ongoing uncertainty.

In contrast, UK borrowing costs saw some reprieve. Yields on benchmark 10-year UK government bonds fell sharply from nearly 4.8% to just above 4.6%, with 30-year bonds also retreating from peak levels.

Bank of England Halts Bond Sales Amid Volatility

In response to the market turbulence, the Bank of England suspended a planned £600 million sale of long-dated government bonds. The move, scheduled for next Monday, was halted “in light of recent market volatility,” further highlighting the institution’s concern about the current economic climate.

Conclusion

With transatlantic markets gripped by uncertainty and economic policymakers urging caution, the Bank of England’s warnings signal the broader consequences of trade wars in an interconnected global economy. As the UK grapples with these external pressures, policymakers and businesses alike will need to remain agile in responding to the unfolding challenges.