BOE’s Bailey urges US to trade tariffs for dialogue

London — Bank of England governor Andrew Bailey urged the US on Wednesday to settle its concerns about the global economy through dialogue rather than the kind of import tariffs that US President Donald Trump has imposed this week.

Bailey, speaking to British legislators, said he had addressed the importance of open trade at a meeting of Group of 20 central bankers and finance ministers last week in SA that was not attended by new US treasury secretary Scott Bessent.

“If you think the world economy is somehow out of balance, the place to address those balances is in a multilateral forum, not by bilateral action,” Bailey said in a question-and-answer session.

Trump ordered 25% tariffs on imports from Mexico and Canada which took effect on Tuesday, with fresh duties on Chinese goods, raising fears of a hit to global economic growth as well as a rise in inflation in the US.

Bailey, speaking to the treasury committee in parliament, said China was running a “very large” current account surplus and he highlighted the “quite radical” announcement by Germany — another big surplus country — of a €500bn infrastructure and defence investment plan on Tuesday.

“The US has to answer the question: yes, you’ve got a current account deficit. You’ve also got a very big fiscal deficit, and you’re financing that current account by external capital,” he said.

US withdrawal from the IMF and the World Bank “would be very damaging for the world”, Bailey added, noting Bessent had said he believed in a multilateral approach.

Much of Wednesday’s question-and-answer session focused on the different views among members of the BOE’s interest rate-setting committee about the best way to express the central bank’s stance on future cuts to borrowing costs.

The BOE cut interest rates last month for the third time since August last year, lowering its benchmark rate to 4.5% from a 16-year peak of 5.25%.

Most rate-setters used the word “careful” to describe their stance on lowering Bank rate again while a minority favoured the word “cautious” to show their concerns about the risk of inflation staying higher than expected.

Bailey, who favoured the “careful” description, said he thought it was unlikely that a pickup in inflation expected by the BOE this year would lead to more permanent inflationary pressures.

“The question we had to address was: is this going to have second-round effects or not?” Bailey said. “Set against a weakening pattern of the economy, probably less likely.”

Alan Taylor, an external member of the monetary policy committee, said he argued strongly for the words gradual and careful which reflected the risks that inflation could prove weaker or stronger than expected, “whereas … cautious might be more associated with one-sided risk”.

By contrast, Megan Greene, another external MPC member, said in a written submission to the parliamentary committee that she “wanted to stress a need to be cautious with our removal of monetary policy restrictiveness”.

BOE chief economist Huw Pill, who said last month that he too was “cautious” about the prospect of further rate cuts, gave a similar message to legislators saying he did not think there was room for rapid rate cuts this year.

Reuters