The UK may be spared the worst effects of Donald Trump’s proposed tariffs on global goods trade due to its economic reliance on services rather than goods, according to Andrew Bailey, Governor of the Bank of England.
Trump has suggested imposing tariffs of up to 60% on Chinese exports to the US and 20% on imports from other countries. Economists warn such measures could trigger a global inflationary spiral, but Bailey suggested the UK’s economy is uniquely positioned to withstand the impact.
“The UK is an open economy, but it is also true that more of our trade is in services rather than goods — tariffs don’t work in the same way on services,” Bailey said. Services now account for 54% of UK exports to the US, including finance, insurance, and education, which have grown significantly since Brexit. Unlike goods, services are subject to non-tariff barriers such as regulatory differences, which are less impacted by customs levies.
Bailey acknowledged that the ultimate inflationary effect of the tariffs remains uncertain, depending on how other countries and exchange rates react. However, he highlighted that the UK is less exposed than economies like Germany or Italy, which have larger trade deficits with the US.
Swati Dhingra, a trade economist and external member of the Bank’s monetary policy committee, recently noted that tariffs could have disinflationary effects, as producers might reduce prices to maintain market share in large economies. This contrasts with concerns about tariffs driving up consumer prices.
Other central bankers, including Christine Lagarde of the European Central Bank, have also downplayed the inflationary impact of tariffs on economies outside the US.
Bailey’s comments come amid a slight rise in UK inflation above the Bank’s 2% target. While he expects inflation to stabilise, he noted that uncertainty remains around how businesses will respond to the government’s upcoming increase in national insurance contributions.
As Britain navigates these challenges, the country’s reliance on services and its smaller exposure to US goods tariffs may provide a degree of economic resilience in the face of escalating global trade tensions.