The UK is set to receive an influx of cheap Chinese imports that could lower inflation amid the effects of Donald Trump’s global trade war, leading economists have said.
After figures showed China’s trade surplus surpassed $1tn (£750bn) despite Washington’s tariff policies impacting exports to the US, the Bank of England indicated that the UK was among the nations emerging as alternative destinations for these goods.
Stephen Millard, a deputy director at the National Institute of Economic and Social Research, stated: “There is anticipation that with the high tariffs the US is imposing on China, China will redirect its trade elsewhere and one of those places will be the UK.”
This month Catherine Mann, an external member of the Bank’s rate-setting monetary policy committee, informed MPs on the Treasury committee that there were early signs of trade diversion affecting UK inflation.
“Import prices have started to moderate due to sterling appreciation and some spillover from the diversion of Chinese products from US tariff burdens to other places, including our docks. Not a lot. Actually less than I would have thought. But it’s there.”
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Official figures released by Beijing this month show China’s trade surplus reached more than $1tn in the year to November for the first time, as manufacturers shipped more to non-US markets to circumvent Trump’s tariffs.
While exports to the US dropped by 29% year-on-year, sales to other markets surged, including a 15% rise in exports to the EU and a 9% increase to the UK compared with the same period a year earlier.
In its November monetary policy report, the Bank stated that Chinese exports to the UK and the euro area had increased, while those to the US had declined. “Early evidence suggests [tariffs] are having a relatively limited effect on global growth and a slightly disinflationary impact on the UK, mainly driven by trade diversion,” the report said.
Headline inflation in the UK is running at 3.2% and is forecast to drop close to the 2% target set by the government by mid-2026. Measures in Rachel Reeves’s autumn budget – including relief on energy bills and fuel duty – are expected to reduce the headline rate by as much as 0.5 percentage points.
This month, the Bank cut its base rate by a quarter-point to 3.75% amid cooling inflationary pressures. Financial markets predict Threadneedle Street will likely reduce borrowing costs by at least another quarter-point in 2026 amid slower economic growth and rising unemployment.
China ranks as the UK’s largest market for imports behind Germany, with £70bn shipped to Britain in the year to June, an increase of 4.1% from a year earlier. Cars, telecoms, and sound equipment were the main imports.
Millard said the impact on UK inflation from an increase in Chinese imports was unlikely to be large but could still contribute to a slowdown in the headline inflation rate in 2026.
“There is potential for a fall in the price of Chinese imports as they attempt to sell more into the UK, which could have a reasonable effect on our import price index,” he added.
Diversion of Chinese exports has raised concerns for European manufacturers worried about being undercut by a cheap influx of goods, leading to pressure on EU leaders and the UK government to respond.
The French president, Emmanuel Macron, said after a visit to Beijing in December that the EU could be forced to take “strong measures” to contain a growing imbalance between Chinese imports and exports with the 27-nation bloc.
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In the UK, ministers have pledged to protect domestic steel producers from an increasing glut of metal on global markets, much of which comes from subsidized Chinese producers.
However, buyers could benefit from lower prices, with the potential to alleviate concerns over inflationary pressures re-emerging next year.
Jack Meaning, the UK chief economist at Barclays, said there was limited evidence of trade diversion from China so far but suggested import prices in the UK were on track to moderate in 2026 amid weaker global economic growth.
“Our forecast is for core goods inflation to decelerate as we move through 2026, from about 1.5% in 2025 to below 1%,” he said. “Part of that story is a more global slowdown; reorganizing excess demand in the global economy, coming into the UK as a small open economy.”
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