The Bank of England’s governor has issued a stark warning that Donald Trump’s apparent fondness for inflationary policies could destabilise the global economy. Speaking at a press conference in London, the governor said the former US president’s rhetoric on tariffs and tax cuts risked reigniting price pressures that central banks have spent the past two years trying to extinguish.
The governor’s comments come as gilt yields spiked across the board, with the 10-year yield touching 4.2 per cent for the first time since October. The market is pricing in a higher risk premium on UK debt, reflecting fears that the US could export inflation to its trading partners. ‘When the world’s largest economy sneezes, we catch a cold,’ the governor quipped, before adding that the UK’s own fiscal vulnerabilities made it particularly exposed.
The warning was greeted with scepticism by some analysts, who pointed out that the Bank’s own forecasts have been consistently wrong. ‘The governor is crying wolf,’ said one trader. ‘The market is more worried about his own incompetence than a tweet from Trump.’
But the governor was unapologetic. He noted that Trump’s tariff proposals could raise US consumer prices by up to 1.5 percentage points, according to recent studies. That would force the Federal Reserve to keep rates higher for longer, attracting capital flows out of emerging markets and into the dollar. Sterling has already fallen 2 per cent against the greenback this month.
‘The bottom line is that inflation is a tax on the poor,’ the governor said. ‘And when the richest country in the world opts for that tax, the rest of us pay the bill.’
Critics accuse the governor of playing politics, but his warning resonates with a growing unease among finance ministers. At a closed-door meeting in Brussels yesterday, EU officials discussed contingency plans for a trade war. The European Central Bank has already signalled it could step up bond purchases if market conditions deteriorate.
Meanwhile, in the UK, the Treasury remains silent. A spokesperson for the Chancellor declined to comment on the governor’s remarks, but sources say the government is ‘monitoring the situation closely’. That seems like a classic case of kicking the can down the road.
Investors should brace for more volatility. The VIX, Wall Street’s fear gauge, has risen 15 per cent in the past week. And gold prices are hovering near record highs as investors seek safe havens. It’s an environment where cash is king, but that doesn’t mean you should hide your money under the mattress. Inflation will erode its value faster than a central banker can print it.
In the words of the governor: ‘Love is a many-splendored thing, but inflation is not something to love.’ Let’s hope the next US president agrees.
