The Bank of England is closely monitoring the possible repercussions of U.S. tariffs on the U.K.’s economic growth, especially amid fears of a global trade slowdown. Andrew Bailey, the Governor of the Bank, articulated these concerns during an interview with CNBC at the IMF-World Bank Spring Meetings.

In anticipation of its monetary policy meeting scheduled for May 8, the Bank is assessing both the positive and negative effects of tariffs on economic growth and domestic supply constraints that may influence inflation rates. Bailey noted, “There is clearly a growth issue we start with, with weak growth … but a big question mark is how much of that is caused by the weak demand, how much of it is caused by a weak supply side.”

He further explained the complex relationship between supply challenges and inflation. A constrained supply could inadvertently lead to higher inflation, complicating the Bank’s decision-making process.

The impact of external tariffs on inflation could manifest in various ways. A shift in trade exports to alternative markets could exert a disinflationary pressure; however, any retaliatory measures taken by the U.K. government against U.S. tariffs—though Bailey indicated this is unlikely—could increase inflation. Currently, he stated that the U.K. is not approaching a recession, though economic uncertainty appears to be affecting both business operations and consumer confidence.

Earlier this week, the International Monetary Fund (IMF) revised its growth prediction for the U.K. for 2025, lowering it from 1.6% to 1.1%. This adjustment highlights concerns about the impact of U.S. tariffs, rising borrowing costs, and escalating energy prices. Policymakers in the U.K. remain optimistic about the possibility of negotiating a favorable trade agreement with the U.S. Currently, the U.S. enforces a 25% tariff on steel, aluminum, and automobiles, alongside a 10% tariff on other British exports.

Bailey expressed optimism regarding potential trade agreements with the U.S., emphasizing that while a deal would be advantageous, the U.K. economy, which is highly service-oriented, would still face challenges from broader economic slowdowns or trade disruptions.

In terms of inflation, Bailey predicted an increase from the current rate of 2.6% in upcoming reports, driven primarily by factors such as energy prices and water bills. However, he reassured stakeholders that this projected bump would not reach the extremes seen in prior years. Following the March meeting, where the Bank held the interest rates steady at 4.5%, market analysts anticipate a potential cut to 4% by August.