Certainly the portents are worrying. The storm that the modern Prospero has conjured is having an impact. Over the past year, the global economy has shifted from a robust, broad-based expansion to a widespread slowdown, with the proportion of the global economy growing above trend falling from four fifths to one sixth. In its May Inflation Report, the MPC projected that global growth would soon stabilise before recovering to around its potential rate by the middle of next year. This reflected: i)  the relative absence of fundamental imbalances in the global economy that would by themselves be expected to derail the expansion;  ii)  a considerable degree of expected policy support to the expansion; and  iii)  some positive momentum in trade discussions. 3  All speeches are available online at www.bankofengland.co.uk/news/speeches  3  On 5 May, with the ink on the MPC’s Report barely dry, President Trump announced further increases in tariffs on imports from China and China retaliated. Later that month, the US additionally threatened new tariffs on Mexico despite having only recently agreed a revised NAFTA accord. The US threat to increase tariffs on auto imports from Europe remains. The latest actions raise the possibility that trade tensions could be far more pervasive, persistent and damaging than previously expected. The rationales for action are broadening.
15  All speeches are available online at www.bankofengland.co.uk/news/speeches  15  material trade shock, other policies, including fiscal policy, would likely need to play important roles in supporting the economy. Conclusion For now, a global trade war and a No Deal Brexit remain growing possibilities not certainties. Monetary policy must address the consequences of such uncertainty for the behaviour of businesses, households and financial markets. In some jurisdictions, the impact may warrant a near term policy response as insurance to maintain the expansion. Markets are currently pricing in much more stimulus than this, suggesting greater pessimism about trade developments as well as potentially concerns about the absence of inflationary pressures. In the UK, the combination of the relatively strong initial conditions – including a tight labour market and inflation at target – and the prospect of greater clarity emerging in the near term regarding the UK and EU’s future relationship argues for a focus on the medium term inflation dynamics. These will be importantly influenced by global developments and even more so by the form that Brexit takes. The MPC’s projections for the UK economy are based on the assumption of a smooth Brexit to the average of a range of outcomes. That assumption is consistent with the MPC’s standard approach to condition its projections on the government policy and with the fact that agreeing a deal is the preferred strategy of both candidates to be the next Prime Minister.