Possible Affects of the Tariff War on UK Inflation and Interest Rates
3rd February 2025
The recent tariffs imposed by the United States on goods from Mexico, Canada, and China could potentially affect UK inflation. While the direct impact on the UK might be limited, the broader implications of these tariffs on global trade and economic stability could still have repercussions.
Economists at the National Institute of Economic and Social Research (NIESR) estimate that the tariffs could lead to a 3.4 percentage point increase in UK inflation in 2025. This would reduce the spending power of households and businesses, potentially leading to higher prices for imported goods. The Bank of England might respond by hiking interest rates, which could further impact economic growth and employment.
The recent tariffs imposed by the United States on goods from Mexico, Canada, and China could indirectly affect UK mortgages. Here are a few ways this might happen:
Economic Uncertainty: Tariffs can create economic uncertainty, which might impact the UK housing market. Uncertainty can lead to lower consumer confidence and reduced spending, which could affect property prices and mortgage demand.
Interest Rates: The Bank of England might respond to economic changes caused by tariffs by adjusting interest rates. If inflation rises due to higher import costs, the Bank of England might increase interest rates to control inflation, which could lead to higher mortgage rates.
Global Supply Chains: Tariffs can disrupt global supply chains, affecting the cost of building materials and home goods. This could increase construction costs and home prices, indirectly impacting mortgage rates and affordability.
Long-Term Borrowing Costs: Tariffs can affect long-term borrowing costs, including UK gilt yields and international bond markets. Higher borrowing costs can lead to higher mortgage rates for UK consumers.
While the direct impact of US tariffs on UK mortgages might be limited, the broader economic implications could still have repercussions on the housing market and mortgage rates.