By Paul Hannon

Higher U.S. tariffs on imports from the U.K. and other countries are unlikely to lead to a persistent pickup in British inflation, a member of the Bank of England's Monetary Policy Committee said Wednesday.

In a speech, Swati Dhingra said the prices of goods and services that the U.K. imports from the U.S. would likely rise as American businesses seek to cover the higher costs they face as a result of tariffs imposed by the Trump administration.

A strengthening of the U.S. dollar as tariffs are rolled out would also boost U.K. prices of imported goods, Dhingra said. However, the rate setter said the prices of goods that other countries sell to the U.S. are likely to fall as demand for them in the world's largest economy cools.

"Trade diversion away from the U.S. would reduce global price pressures for the U.K. and the dampening of global economic activity from increased trade barriers and uncertainty would also subdue international price growth," she said.

Central bankers within and without the U.S. have been trying to figure out how tariffs will affect inflation ever since Donald Trump was elected president in November, having threatened to impose new levies on a wide range of countries.

Dhingra's comments suggest she is likely to continue to vote for cuts in the BOE's key interest rate, having earlier this month backed a larger reduction than that favored by most of her colleagues on the MPC.

"Tariffs are likely to create one-off adjustments in prices, rather than inflationary persistence," she said.

Higher U.S. tariffs have already prompted retaliation from some of the affected countries, and that is likely to continue as additional levies are implemented.

Dhingra said that if that process is orderly and allows countries to "undertake a deliberate and systematic reconfiguration of trade relationships," there is unlikely to be a significant impact on inflation.

However, the outcome would be different if the process is disorderly and "countries scramble to secure alternative suppliers."

"In the extreme scenario, several large economies deciding to impose trade barriers similar to those proposed by the U.S., would put severe strain on a few sources of supply," she said. "Price spikes and volatility would arise as economies lose diversified supply relationships, particularly in critical inputs."

Dhingra said that extreme scenario seems unlikely to come to pass, since the European Union and other large economies appear to be willing to negotiate with Trump.

"The world economy seems to be moving closer to an orderly fragmentation, possibly of a milder form than one with very punitive countermeasures," she said.

Write to Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

February 26, 2025 12:08 ET (17:08 GMT)

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