The Bank of England will rely on a “crucial judgment” regarding future UK wage growth, which is expected to decline, to guide interest rate decisions amidst significant global uncertainty stemming from Donald Trump’s trade policies. Governor Andrew Bailey conveyed this to MPs.
Bailey stated that he has “no evidence to doubt” that wage settlements should be around 3.7% to 3.8% by the end of the year. This anticipated moderation in domestic inflationary pressures offers a potential pathway for further rate cuts, despite the external headwinds.
However, Bailey also expressed concern about the “fragmenting world trading system” and its negative impact on global growth and activity, acknowledging its influence on the broader economic landscape and the precise timing of rate adjustments.