Bank of England official says trade diversion from US tariffs may cool UK inflation

A senior Bank of England (BoE) policymaker says a surprising spill-over from global trade tensions may be helping to ease inflationary pressures in the UK, potentially speeding up the central bank’s path to looser monetary policy.

Speaking on Wednesday in Singapore, Monetary Policy Committee member Alan Taylor highlighted “trade diversion” — a re-routing of goods away from the United States toward other economies — as a factor dampening price rises in Britain. This phenomenon, prompted by higher U.S. tariffs on Chinese exports, appears to be lowering import costs and feeding through to UK consumer prices, he said.

Meanwhile, the BoE policymaker shared recent UK inflation reports, noting that the current rate stands at 3.2%. In contrast, it is anticipated to decline to a record low of 2% by mid-2026 and remain at this level, as wage increases are occurring at a slower rate. Notably, the 2% figure represents the inflation target set by the central bank.

“Exports that can no longer go to the U.S. from China may now flow to other places, and the current data suggest this is indeed starting to happen,” Taylor said, describing the shift as trade diversion rather than trade destruction.

China embraces diversification in its trade practices 

While delivering a speech to the audience during an event in Singapore held on Wednesday, January 14, Taylor sparked hope in the UK’s economic growth after stating that the underlying inflationary pressures in the country are subsiding. This ease was noted when China adopted the idea of diversifying its export markets away from the U.S. following the imposition of steep tariffs by Trump on the nation.

With this move in place, the MPC member stated that he was certain the levels of inflation in the UK would drop drastically to a lower level than anticipated. In the meantime, recent Chinese trade statistics revealed that exports to the UK surged by 7.8% in the last year compared to 2024.

Interestingly, Chinese exports to the EU also demonstrated a similar trend, surging by 8.4%. Contrary to this trend, the U.S. reported a significant decline in shipments by around 20%. At this point, analysts noted that Chinese exports to the EU and the UK had increased by $50 billion, offsetting nearly 50% of the losses incurred in the U.S., which totaled $104 billion.

Noting this significant progress, China’s General Administration of Customs released reports indicating that China, widely recognized as the world’s largest exporter of goods, is expanding its production capabilities and supplying goods to new markets. To make its export offers more appealing to its clients, China has significantly reduced the prices of goods it sells to other nations in recent months. 

Responding to China’s move, the EU decided to implement its own tariffs on the imports of electric automobiles and settle with China to safeguard its local industries. The UK, on the other hand, adopted a softer approach.

With this lenient approach, the Society of Motor Manufacturers and Traders released a statement acknowledging that the UK had established a suitable trade environment for China. For example, Chinese car brand BYD achieved a substantial sales performance of approximately 466% throughout 2025, consequently establishing itself as the UK’s sixth most registered vehicle brand.

Considering the advantages it brings, officials at the BoE proposed that diversification in trade is a promising factor in lowering inflation levels by about 0.2 percentage points in 2026 and 2027. Taylor weighed in on this prediction, describing it as quite conservative, but insisted that its effects would be significant.

Taylor sparks hope for an enhanced global trade 

Taylor is widely perceived as one of the most dovish members of the Bank of England’s rate-setting Monetary Policy Committee. He is also known for his strong belief that U.S. tariffs will play a crucial role in reducing the UK’s price pressures.

“I believe we are witnessing significant trade diversion to the UK and also to the EU, our main trading partner. The effects are more visible in some sectors due to policy responses to increased imports,” he said.

He also pointed out the difference in the surge of global protectionism between the present moment and that of the 1930s, asserting that today’s rise primarily focuses on the U.S.

“Most trade routes still do not face any increase in tariffs,” he pointed out. “This situation is not like the 1930s, when harmful policies damaged the global trading system.” 

Following this situation, Taylor believed that more nations would demonstrate heightened interest in trade activities, lowering the possibility of a substantial decline in global trade.

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