A senior Bank of England (BoE) policymaker has indicated that a surprising spill-over effect from global trade tensions might be contributing to the easing of inflationary pressures in the UK. This phenomenon could potentially accelerate the central bank's timeline for implementing looser monetary policy.
Speaking in Singapore, Monetary Policy Committee member Alan Taylor highlighted "trade diversion" as a factor dampening price rises in Britain. He described this as a re-routing of goods away from the United States toward other economies. This shift, prompted by higher U.S. tariffs on Chinese exports, appears to be lowering import costs and subsequently feeding through to UK consumer prices.
Taylor also shared recent UK inflation reports, noting that the current inflation rate stands at 3.2%. Projections anticipate a decline to a record low of 2% by mid-2026, with inflation remaining at this target level as wage increases occur at a slower pace. 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 stated, characterizing the shift as trade diversion rather than trade destruction.
China Embraces Diversification in Its Trade Practices
During a speech at an event in Singapore, Taylor expressed optimism regarding the UK's economic growth. He noted that underlying inflationary pressures in the country are subsiding, a trend he linked to China's diversification of its export markets away from the U.S. following the imposition of steep tariffs by the Trump administration.
Taylor conveyed certainty that inflation levels in the UK would drop to a lower level than previously anticipated. Recent Chinese trade statistics revealed that exports to the UK surged by 7.8% in the last year compared to 2024.
Chinese exports to the EU also demonstrated a similar upward trend, increasing by 8.4%. In contrast, the U.S. reported a significant decline in shipments from China, approximately 20%. Analysts observed 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.
China's General Administration of Customs released reports indicating that the world's largest exporter of goods is expanding its production capabilities and supplying to new markets. To enhance the appeal of its export offers, China has significantly reduced the prices of goods sold to other nations in recent months.
In response to China's trade practices, the EU decided to implement its own tariffs on imported electric automobiles to safeguard its local industries. The UK, however, adopted a more lenient approach.
The Society of Motor Manufacturers and Traders acknowledged that the UK had established a suitable trade environment for China. As an example, the Chinese car brand BYD achieved substantial sales performance, increasing by approximately 466% throughout 2025, and consequently became the UK’s sixth most registered vehicle brand.
Considering the potential advantages, BoE officials proposed that trade diversification is a promising factor that could lower inflation levels by about 0.2 percentage points in 2026 and 2027. Taylor described this prediction as conservative but emphasized that its effects would be significant.
Taylor Sparks Hope for Enhanced Global Trade
Taylor is widely regarded as one of the more dovish members of the Bank of England’s rate-setting Monetary Policy Committee. He strongly believes 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 stated.
He also highlighted the difference in the surge of global protectionism between the present moment and 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.”
Taylor expressed his belief that more nations would demonstrate heightened interest in trade activities, thereby lowering the possibility of a substantial decline in global trade.