Bank of England (BoE) Monetary Policy Committee (MPC) member Dr. Swati Dhingra cautioned that the United Kingdom (UK) could be facing a rocky road on inflation, especially as knock-on effects from the Trump administration’s tariff-heavy trade policies reverberate through the global economy.
However, this isn’t Dr. Dhingra’s base case scenario, noting that a rapidly-appreciately US Dollar (USD) would be the key spark for UK inflation metrics, something that doesn’t appear to be happening to any significant degree.
Key highlights
My vote for a 50 bps rate cut was partly to make a statement on the direction of the economy.
We might see some cost pass-through from US tariffs, but I argue that the number would be quite small.
I won’t rule out a scenario where global trade breaks up and the UK suffers inflation, but I don’t think that’s where we’re headed.
My working hypothesis is that dollar depreciation is not going to put immense pressure on UK import prices.
If the dollar starts to really go up, we have to worry about what exchange rate dynamics do for UK inflation.