By Ed Frankl

U.S. trade agreements in recent days mark progress toward reducing tariff barriers, although uncertainty remains a hindrance to economic growth, according to the Bank of England's deputy governor.

"In so far as we are seeing changes now that are reducing uncertainty, that is very, very good news," Clare Lombardelli said Monday after a speech at the Bank of England Watchers' Conference in London.

The U.S. and China on Monday agreed to suspend most tariffs on each other's goods pending further negotiations, leading U.S. stock futures higher. The U.K. and the Trump administration last week agreed to the outlines of a trade deal, which include rolling back of tariffs on British steel and cars, though maintaining the U.S.'s global 10% tariff.

"There is still a long way to go. But what we've seen in the last few days is progress," Lombardelli said.

Any kind of trade deal should help limit the damage from tariffs, the BOE's governor Andrew Bailey said Friday, though he cautioned that more important for the British economy would be that the deal leads to other agreements in the months ahead that reduce trade barriers more broadly.

Nevertheless, the continuing uncertainty prompted by U.S. trade policy will lead to weaker growth and continued lower inflation in the U.K., the Bank of England's deputy governor said Monday.

"Higher tariffs and more uncertain U.S. policies will likely reduce growth and inflation," Lombardelli said, owing to reduced demand and trade diversion as the rest of the world cuts their exports to the U.S.

Underlying inflationary pressures continued to fall in the U.K., though wage growth remains too high to be consistent with hitting the bank's 2% target, Lombardelli said. The appreciating pound against the dollar also meant lower imported inflation.

"In the longer term, if global trade were to fragment, this would reduce output and productivity and would raise inflationary pressures," she cautioned.

The central bank last week cut its key rate to 4.25% from 4.5%. Lombardelli said she was "balanced" about her own decision ahead of the meeting but further progress on disinflation and trade developments led her to vote to cut.

While the BOE said it continued to view a "careful and gradual" approach to cutting rates as appropriate, it indicated that it would be prepared for more aggressive moves should the hit to growth from tariffs prove more severe than anticipated.

Write to Ed Frankl at edward.frankl@wsj.com

(END) Dow Jones Newswires

May 12, 2025 04:58 ET (08:58 GMT)

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