Trump’s trade war will ‘depress activity’, Bank of England warns as officials weigh up how to respond

By JESSICA CLARK and JOHN-PAUL FORD ROJAS

Updated: 22:00 BST, 8 April 2025

The Bank of England’s deputy governor last night warned that Donald Trump’s trade war will ‘depress activity’ as officials weigh up how to respond to the turmoil.

Clare Lombardelli said officials would assess how it would affect inflation and the wider economy ahead of the Bank’s next interest rate decision next month.

Markets are now betting that the Bank of England will cut interest rates three or four more times this year.

Lombardelli, speaking at an event hosted by the Resolution Foundation think-tank, said that with US trade policy changing – and other nations responding – there had been an ‘increase in uncertainty and changes in asset prices’.

She said: ‘We will think about the impact on UK activity and UK pricing. The affect on activity, we know the tariffs are likely to depress activity overall, the direction there is relatively clear.

‘On inflation it depends a lot more on the circumstances on how other countries respond and how that feeds through to the UK. We will think about all that together for the decision in May.’ 

Fears: Deputy Bank of England governor Clare Lombardelli (pictured) said officials would assess how the trade war would affect inflation ahead of the interest rate decision next month

Meanwhile, a report from advisory firm Interpath warned that the number of UK companies going bust will ‘rise sharply as businesses grapple with the impact of new US tariffs on their organisations and the wider economy’.

It showed 330 businesses went into administration in the first quarter of 2025, up from 321 in the same period a year ago but down from the last three months of 2024 when 337 companies went bust.

The advisory firm’s UK chief executive Will Wright said: ‘The universal tariff imposed by the US has sent shockwaves round the globe and has knocked corporate confidence. Quite simply, UK plc is unnerved.’

And figures from accountancy firm RSM showed financial conditions saw their sharpest drop in more than two years this week – pointing to less availability of credit and higher costs.

However, some experts believe the UK could prove more attractive for investment as the 10 per cent US tariffs it faces are lower than those for other major exporters, including the EU.

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Trump’s trade war will ‘depress activity’, Bank of England warns as officials weigh up how to respond

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