Andrew Bailey, the Bank of England governor, has directly linked the heightened volatility in financial markets and the uncertainty surrounding UK interest rates to rapidly changing US trade policy, particularly under Donald Trump. He informed MPs that while rates are still expected to fall, the speed and extent are now highly unpredictable.
The governor observed that a specific “constellation” in financial markets – where equity markets fall while US bond yields rise and the dollar depreciates – has historically prompted shifts in White House policy. He warned that this pattern needs careful monitoring as equity markets appear to be overly optimistic about future outcomes.
Despite these global trade anxieties, Bailey remains optimistic about domestic wage trends, forecasting a decline in UK wage growth. This anticipated easing of inflationary pressures from wages could provide crucial headroom for the Monetary Policy Committee to consider further interest rate reductions.