Bailey: ‘Essential that we don’t abandon multilateralism,’ risks to UK and global economy from trade wars ‘substantial’
We’ve moved on to US tariffs.
Bank of England policymaker Megan Greene said if the US imposes tariffs on UK imports, that would be bad for British economic growth, and also push down inflation, all things being equal.
Andrew Bailey, the governor, said “trade supports growth”. On tackling imbalances such as China’s current account surplus, he said:
The place to solve [these problems] is in multilateral forums
rather than bilaterally. He said “it’s really essential” that “we don’t abandon multilateralism”. He added:
The risks to the UK economy and the world economy are substantial.
Key events
Closing summary
Bank of England governor Andrew Bailey said there was a “major shift going on in the US” which the Bank would have to “take very seriously”, as he was quizzed by MPs on the Treasury select committee about the impact of changes to trade policy and new tariffs.
“The risks to the UK economy and the world economy are substantial,” he stressed.
European financial markets have rallied sharply and German borrowing costs soared after the country’s prospective leaders announced a historic deal to loosen its “debt brake” rule to boost spending on defence.
The yield – in effect the interest rate – on 30-year German government bonds rose by 16 basis points, after having earlier jumped by as much as 25 basis points to 3.07% in its biggest increase since October 1998.
The Dax 30 index, which tracks the largest German companies, rose by almost 4%, powered by industrial stocks. Share prices also leapt in London, Paris and Milan amid investor hopes that a massive boost in European spending on defence and infrastructure would kickstart the region’s ailing economy.
Defence stocks have gained sharply in recent weeks as world leaders scramble to piece together the funding for a vast increase in military expenditure amid mounting concern over Donald Trump’s commitment to European security.
The euro jumped by 1.4% against the dollar, while sterling was 0.6% higher against the US currency. The dollar slid by 1.1% against a basket of major currencies.
Thank you for reading. We’ll be back tomorrow.
The Bank of England governor has also warned that the US leaving institutions like the International Monetary Fund and the World Bank would be a “very damaging thing for the world”.
Speaking to MPs on the Treasury select committee, Andrew Bailey said he was encouraged after hearing that the new US Treasury Secretary Scott Bessent “believes in multilateralism, and I strongly welcome that”.
Bailey also said there was a “major shift going on in the US” which the Bank would have to “take very seriously”, after he was quizzed about the impact of potential changes to trade policy and new tariffs.
“The risks to the UK economy and the world economy are substantial,” he stressed.
When asked if US trade policy could lead to people having less money in their pockets, he answered: “Yes, that’s right… We serve the people, and we have to take it very seriously.”
Wall Street edges higher after services data, while investors hope for softer approach on tariffs
Shares on Wall Street have risen moderately, after better-than-expected survey data on the US services sector calmed nerves somewhat, while investors wait for more news on tariffs – with hopes for a softer approach.
US commerce secretary Howard Lutnick said Donald Trump is considering granting some relief on imports of goods such as cars and car parts that comply with the free trade agreement between the US, Mexico and Canada.
An announcement is expected later today.
The Dow Jones rose by 0.4% while the S&P 500 edged 0.16% higher and the Nasdaq was 0.2% higher.
A survey from the Institute for Supply Management showed the US services sector expanded more strongly than expected last month, with the index at 53.5, above forecasts of 52.6. Any reading above 50 indicates expansion. However, rising cost pressures are a concern.
Bailey: ‘Essential that we don’t abandon multilateralism,’ risks to UK and global economy from trade wars ‘substantial’
We’ve moved on to US tariffs.
Bank of England policymaker Megan Greene said if the US imposes tariffs on UK imports, that would be bad for British economic growth, and also push down inflation, all things being equal.
Andrew Bailey, the governor, said “trade supports growth”. On tackling imbalances such as China’s current account surplus, he said:
The place to solve [these problems] is in multilateral forums
rather than bilaterally. He said “it’s really essential” that “we don’t abandon multilateralism”. He added:
The risks to the UK economy and the world economy are substantial.
Governor Andrew Bailey is now talking. All four members of the rate-setting committee who are testifying at the moment in front of MPs, voted in favour of cutting interest rates from 4.75% to 4.5% at last month’s meeting. Two other members (Swati Dhingra and Catherine Mann) voted against.
Bailey said the central bank expects a pick-up in inflation, but it will be nothing like a few years ago.
Megan Greene, another external member of the monetary policy committee, is now speaking. She is a senior fellow at the Watson Institute for International and Public Affairs at Brown University and also teaches at London Business School.
“The disinflationary trend that we’ve had is probably on track,” she said.
“GDP [growth] has roughly flatlined since March,” she added.
The Treasury committee hearing has just started, with Prof Alan Taylor, a professor at New York’s Columbia University and an external member of the MPC, speaking first. Referring to a series of shocks such as Brexit, the Covid-19 pandemic, Russia’s invasion of Ukraine etc, he said:
We are living in an age of uncertainty.
Those kinds of shocks leave big scars.
When you have uncertainty, it will feed through first into demand.
and later supply.
While we wait for Bank of England governor Andrew Bailey and other policymakers to appear before the Treasury committee, here are some written comments from Megan Greene, one of the monetary policy committee members.
She has advocated a cautious approach to cutting interest rates. In the annual report to the committee, she explained:
It’s less likely inflation persistence will fade on its own accord, and more likely monetary policy will need to remain restrictive in order to either generate a negative output gap to bring inflation to target sustainably or to lean against structural shifts in the economy.
The dollar has been sliding amid “Trumpcession” fears, and has lost 0.9% against a basket of other major currencies. The dollar index fell to 104.75.
The euro has jumped by 1.2% to $1.0755, as investors were cheered by. Germany’s proposed €500bn infrastructure fund, and the prospect of a splurge in defence spending, despite fears over trade wars.
Sterling has also strengthened against the US currency, rising by 0.5% to $1.2855.
The selloff in the US dollar is accelerating, after payroll operator ADP reported a sharp slowdown in hiring last month.
The dollar is now down 0.85% today against a basket of other major currencies.
The US Commerce Secretary has appeared to hint that Donald Trump could cut Canada and Mexico some slack on the tariff front.
Howard Lutnick told Bloomberg Television this morning that president Trump could announce changes to the tariffs on Canada and Mexico as soon as this afternoon. That could include rolling back the rate on sectors like autos.
Bloomberg reports:
Trump is expected to make a decision on the matter this afternoon, Lutnick added, reiterating that the administration’s tariff policy would be re-evaluated on April 2 to include larger swaths of imports and reciprocal levies.
“There are going to be tariffs — let’s be clear — but what he’s thinking about is which sections of the market that maybe he’ll consider giving them relief until we get to, of course, April 2,” Lutnick said. “I think it is going to be in the middle somewhere.”
Trump is set to announce changes to the Canada and Mexico tariffs this afternoon as he considers rolling back the rate on sectors like autos that are USMCA compliant, Commerce Secretary Howard Lutnick tells Bloomberg Television. @endacurran @josh_wingrovehttps://t.co/JcuVWONBsd
— Stephanie Lai (@stephaniealai) March 5, 2025
US private sector job creation slows
Graeme Wearden
Oh dear.
Much fewer jobs were created at US companies last month, in a sign that America’s economic growth could be losing pace.
Private employers across the US added just 77,000 jobs in February, according to payrolls operator ADP, down from 186,000 in January.
That’s the smallest rise in hiring since last July – ADP reports that trade and transportation, health care and education, and information showing job losses. Small business employment also fell.
Economists had expected an increase of around 140,000 new hires, so this is a significant miss.
Nela Richardson, chief economist at ADP, explains that companies may be nervous about hiring more staff in the current economic climate:
“Policy uncertainty and a slowdown in consumer spending might have led to layoffs or a slowdown in hiring last month.
“Our data, combined with other recent indicators, suggests a hiring hesitancy among employers as they assess the economic climate ahead.”
ADP reports that firms in the Northeast of the US added 55,000 jobs, while Midwest companies added 56,000.
But there was a 12,000 drop in payrolls in the South, and a 27,000 decline in the West.
UK says Microsoft/OpenAI partnership does not need anti-trust investigation
In the tech world, Britain’s competition authority has ruled that Microsoft’s partnership with OpenAI Inc does not qualify for an investigation.
The CMA has concluded that the tie-up does not fall under the merger provisions laid out in the Enterprise Act 2002.
The regulator had decided to look at the partnership, after a bout of leadership and boardroom turmoil at OpenAI which resulted in the firing and rehiring of CEO Sam Altman, and Microsoft getting a non-voting observer seat on the OpenAI board.
Microsoft invested $1bn in OpenAI in 2019, but while this gave it “material influence”, the CMA has concluded that it does not now have de facto control.
A Microsoft spokesperson has welcomed the CMA’s decision, saying the partnership with OpenAI will “promote competition, innovation, and responsible AI development”, adding
“We welcome the CMA’s conclusion, after careful and prudent consideration of the commercial realities, to close its investigation.”
Graeme Wearden
Back in the UK, the takeover of Royal Mail is likely to be delayed by regulatory issues in Romania.
Czech billionaire Daniel Kretinsky’s EP Group told the City this morning that the deal is now likely to be signed off in the second quarter of 2025, once a Regulatory Condition related to foreign direct investment in Romania has been resolved.
That Condition is the only one that remains ourstanding, EP says.
EP Group won approval for the £3.57bn takeover of Royal Mail last December, and the deal had been expected to close in the first quarter of this year.
Here’s our full story on the rise in Tesla’s UK sales, despite a consumer backlash in the rest of Europe following Elon Musk’s repeated interventions in regional politics.
Canada requests WTO consultations with US over ‘unjustified tariffs’
Graeme Wearden
Canada’s ambassador to the World Trade Organization in Geneva has started the ball rolling to fight Donald Trump’s latest tariffs.
In a posting on LinkedIn, ambassador Nadia Theodore said she had requested “consultations” with the US over the 25% tariffs which were imposed yesterday.
Theodore writes:
The U.S. decision leaves us with no choice but to respond to protect Canadian interests.
All hands on deck.
Everyone play their position.
I played mine today and on behalf of the Government of Canada, requested WTO consultations with the Government of the United States in regard to its unjustified tariffs on Canada.
Theodore adds that Trump’s decision to impose the tariffs was “not the outcome we hoped for”, and urges the US administration to reconsider their tariffs, adding:
But until then, elbows up.
M&S hands store staff 5% pay rise
Marks & Spencer is handing its 50,000 shop workers a 5% pay rise from 1 April.
The clothing and food retailer said the pay for UK customer assistants will go up to at least £12.60 an hour, while those in London will get £13.85 an hour.
This will cost the company £95m.
The move comes ahead of the 6.7% rise in the UK’s national minimum wage to £12.21 an hour for most adults from next month.
M&S chief executive Stuart Machin said:
Following the government’s recent increases in tax and national insurance contributions, it’s no secret that M&S and indeed the entire retail sector has some significant cost headwinds to face in the new financial year.
However, I have always believed that we should not allow these headwinds to impact our hourly paid colleagues.
Several other retailers, including Sainsbury’s and Costa Coffee, have also recently announced pay rises above the rate of inflation, which hit a 10-month high of 3% in January.
Pay growth in the UK picked up in late 2024 and is being watched closely by the Bank of England, which is tasked with keeping overall consumer price inflation at an annual rate of 2%. The central bank has been cautious about cutting its base rate, currently at 4.5%.
Governor Andrew Bailey, chief economist Huw Pill and other policymakers will appear before the treasury committee this afternoon to answer questions from MPs on interest rates.
