Published by Global Banking & Finance Review®
Posted on February 26, 2025
3 min readLast updated: January 25, 2026
Add as preferred source on GoogleBoE's Swati Dhingra discusses the impact of global tariffs on supply chains and inflation, emphasizing the need for careful monetary policy adjustment.
By David Milliken
LONDON (Reuters) -The Bank of England's response to higher U.S. tariffs and other trade restrictions will depend on the extent to which they disrupt supply chains rather than just push up costs, BoE policymaker Swati Dhingra said on Tuesday.
Dhingra - a trade specialist at the London School of Economics and a member of the BoE's Monetary Policy Committee - said that in the short term, the inflationary impact of higher tariffs was likely to be offset by weaker global growth.
"If the world economy fragments in an orderly way, monetary policy would likely not need to respond while the world economy transitions and prices re-adjust to reflect the new geopolitical developments," she said.
However, if tariffs evolved into a system that placed strict barriers on the foreign content of imported goods, that could lead to a disorderly break-up of supply chains.
"In the extreme scenario, several large economies deciding to impose trade barriers similar to those proposed by the U.S., would put severe strain on a few sources of supply," she said in a speech delivered to Britain's National Institute of Economic and Social Research.
Dhingra considered this scenario - which could lead to price spikes like those seen after Russia's full-scale invasion of Ukraine three years ago - as less likely than more modest frictions.
"The world economy seems to be moving closer to an orderly fragmentation," she said.
British finance minister Rachel Reeves told Reuters on Wednesday she was confident that U.S.-UK trade and investment would not be derailed by the new U.S. administration.
Prime Minister Keir Starmer is due to meet Trump in Washington on Thursday with the risk of trade tariffs one of the key issues on the table.
Monetary policy was ill-suited to dealing with supply shocks from trade tariffs that hit a small range of key sectors, Dhingra added.
Higher interest rates needed to tame inflation risked stopping investment in sectors such as energy and food that were needed to boost resilience, she said.
Dhingra has been the MPC member who has voted most often for looser monetary policy since she joined in August 2022.
This month she voted for a half-point cut in interest rates to 4.25%, rather than the quarter-point cut favoured by a majority of MPC members.
Earlier this week she said the BoE's current pace of loosening - quarter-point cuts each quarter - would still leave monetary policy in too restrictive a stance at the end of 2025.
(Additional reporting by Suban Abdulla; Editing by Kirsten Donovan)
Dhingra indicated that the inflationary impact of higher tariffs depends on how they disrupt supply chains, rather than merely increasing costs.
If tariffs create strict barriers on foreign content, it could lead to a disorderly break-up of supply chains, causing severe strain on supply sources.
Dhingra believes that monetary policy is ill-suited to address supply shocks from trade tariffs that affect a limited range of key sectors.
Dhingra voted for a half-point cut in interest rates to 4.25%, arguing that the current pace of loosening would still leave monetary policy too restrictive.
Dhingra considers a scenario where several large economies impose severe trade barriers, leading to price spikes, as less likely than more modest frictions.
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