The UK is poised for an influx of cheap Chinese imports that could bring down inflation amid the fallout from 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 hitting exports to the US, the Bank of England said the UK was among the nations emerging as alternative destinations for the goods.
Stephen Millard, a deputy director at the National Institute of Economic and Social Research, said: “There is an expectation that given the high tariffs the US are imposing on China, that China will divert 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, told MPs on the Treasury committee there were early signs of trade diversion affecting UK inflation.
“Import prices have started to moderate on the back of sterling appreciation and some of the spillover of the diversion of Chinese products from the US tariff burdens to other places, including to our docks. Not a lot. Actually less than I would’ve thought. But it’s there.”
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 sidestep Trump’s tariffs.
While exports to the US plummeted by 29% year-on-year, sales to markets elsewhere ballooned, including a 15% rise in exports to the EU and 9% jump to the UK compared with the same period a year earlier.
In its November monetary policy report, the Bank said Chinese exports to the UK and 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, driven mainly 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 the middle of 2026. Measures in Rachel Reeves’s autumn budget – including relief on energy bills and fuel duty – are expected to cut 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 probably reduce borrowing costs by at least another quarter-point in 2026 amid weaker levels of 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 add 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 rung alarm bells 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 curb a ballooning imbalance between Chinese imports and exports with the 27-nation bloc.
In the UK, ministers have pledged to protect domestic steel producers from a mounting glut of the metal on global markets, much of which comes from subsidised 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 growth in the world economy.
“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; a reorganising of excess demand in the global economy, coming into the UK as a small open economy.”