Bank of England sounds alarm on 'substantial' risks to UK economy – 'Rapid interest rate cuts unlikely!'

Speaking at the Treasury Select Committee, Bailey warned that recent US trade policies pose "substantial" risks to both the UK and global economy.

Addressing MPs on Wednesday, Bailey highlighted a "major shift" in US trade strategy, stressing that the Bank must "take it very seriously" when assessing the economic outlook.

His remarks follow President Donald Trump’s latest round of tariffs, which this week saw Canada and Mexico hit with a 25 per cent import tax, escalating trade tensions further.

Alongside Bailey were senior officials including Huw Pill, Megan Greene and Alan Taylor. Greene told MPs that tariffs could impact exchange rates, with US duties on the UK likely to push inflation up, while retaliatory tariffs could drag growth and inflation down.

However, she noted that recent currency movements have been unpredictable, making the inflation outlook highly uncertain.

An "age of uncertainty", especially over the path of inflation, means that rapid interest rate cuts are unlikely to be coming to the UK, the officials said.

Pill, chief economist at the Bank of England, said the central bank was unlikely to make "larger and more rapid cuts to interest rates" in the future, thanks to the path of inflation.

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He said: "There is more work to do to squeeze those domestic underlying inflation out of the system. That entails maintaining some restrictiveness in the monetary policy stance."

Taylor, an external member of the Bank of England’s Monetary Policy Committee (MPC) added: "We’re living in an age of uncertainty."

Most officials at Threadneedle Street have taken the view that rates should stay higher for longer in order to counter the risk of elevated inflationary pressures.

Matthew Ryan, head of market strategy at global financial services firm Ebury, said: "For now, we think that most officials will reinforce the view that a ‘gradual’ pace of cuts remains warranted, which would probably cement market expectations for just two more UK rate cuts during the remainder of the year."

Trump’s tariff plans, rising energy prices, and tax hikes from the October Budget have fueled uncertainty over inflation and the economy in recent months.

Bank of England Governor Andrew Bailey highlighted concerns over National Insurance, stating that it is raised at "almost every meeting" with businesses.

Bailey noted that when the National Insurance increase was announced, economists predicted it would lead to higher prices, squeezed profit margins, and lower employment—all of which have materialized.

He said: "We can see all of those… and when we ask firms, that’s exactly the answer we get," adding that the Budget had a measurable impact on inflation and that businesses have reported cutting wages in response to the hike.

However, while inflation was a concern for the Bank, Bailey said that the UK economy was ultimately heading on a long-term path towards a decrease in price hikes.

Trump and his administration have claimed higher tariffs on US imports will help it gain leverage over allies and rivals around the world.

However, experts have warned that trade barriers could hurt both the US and other countries’ economies, including the UK.

Bailey said: "The risks to the UK economy and the world economy are substantial," while adding: "Trade supports growth."