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Carney sees ‘widespread slowdown’ as trade tensions deepen

Bank of England governor Mark Carney has warned that the global economy is in a “widespread slowdown”, with “worrying” signs ahead amid sustained trade tensions.

Mr Carney said Donald Trump’s latest skirmishes with China, Mexico and Europe raised the prospect of these tensions being “far more pervasive, persistent and damaging” than previously expected.

They risked dragging on growth globally and in the UK – where Brexit uncertainty was also increasingly weighing on the economy, he told an audience in Bournemouth.

Mr Carney’s comments helped pull the pound lower against the dollar and the euro as traders bet on a gloomy outlook from the Bank potentially making lower interest rates more likely.

Mexican goods destined for the US
Image: The US has opened up tariff disputes with China, Mexico and Europe

The governor said markets had undergone a “sea change” in recent months reflecting growing concerns over trade and uncertainty over how central banks would respond.

“Certainly the portents are worrying,” Mr Carney added.

“Over the past year, the global economy has shifted from a robust, broad-based expansion to a widespread slowdown.”

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Mr Carney said trade worries had worsened since the Bank of England published its last quarterly Inflation Report back in May – which had pencilled in an expectation that growth would stabilise soon before returning to normal next year.

But soon afterwards, Mr Trump announced further increases on tariffs with China, with Beijing retaliating, while there were also further threats to Mexico and Europe.

“The latest actions raise the possibility that trade tensions could be far more pervasive, persistent and damaging than previously expected,” Mr Carney said.

Signs of rapprochement, with the US and China agreeing at the weekend to reopen trade talks, were welcome, he added, while cautioning that they were no guarantee of progress.

Governor of the Bank of England, Mark Carney.
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But he warned that the rationale behind Washington’s simmering tariff threats had broadened.

Originally justified as a means of reducing big trade imbalances with other economies, they were now being wielded in response to issues such as immigration and control of technology.

“The longer current tensions persist, the greater the risk that protectionism becomes the norm,” Mr Carney said.

“Once raised, tariffs are usually slow to be lowered.”

In the UK, the Bank of England has already said it expects the economy to have flatlined over the second quarter of the year as Brexit uncertainties take their toll.

Mr Carney told his audience in Bournemouth that figures suggested this uncertainty had already caused a 12% hit to business investment.

He added that global tariff announcements made so far were expected to cause a drag of 0.1% on UK GDP – rising to 0.4% if all of them were implemented.

But he said that if there were a “Brexit-style confidence shock in the US and China”, the total impact on the UK would rise to more than 1% of GDP.

Mr Carney said: “Whether current trade tensions shipwreck the global economy or prove to be a tempest in a teacup will have an important influence on the outlook for growth and inflation in the UK.”

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