Cheaper Chinese Goods Set to Ease Iran Effect on UK Inflation

ui68ra5z0lmfld12)tmn61kj_media_dl_2.png Bloomberg analysis of Chinese cu

Article content

(Bloomberg) — The economic repercussions of Donald Trump’s war on Iran are threatening to hurt Britain more than other major economies, with the Bank of England keeping a close eye on price pressures. Yet one of the US President’s other flagship policies — high tariffs — could have a peculiar side-effect of defending the UK from spiraling inflation.

Article content

Chinese factories are cutting prices on exports to the UK as they look for alternative markets in the face of Trump’s tariffs. Among the top 25 goods that made up 45% of total Chinese shipments to the UK in January and February, 14 saw their unit value-based prices fall from the same period last year, according to Bloomberg calculations based on data from China’s General Administration of Customs. 

Article content

Article content

Article content

The price for cars, the Asian nation’s largest export to Britain, sank 4.6%, extending a decline that has lasted nine quarters, as arrivals more than doubled from a year earlier. Other consumer goods, from computers and phones to furniture and bags, also recorded price drops with shipment volumes spiking.

Article content

Article content

UK sales of China‑made goods grew more than three times as fast as in 2025 during the first two months of this year as US tariffs drove Chinese exporters to expand into markets other than the US. If the downward trend in prices continues, it could offer some relief to Britons fearful of climbing inflation and rising energy costs due to conflict in the Middle East.

Article content

The increase in cheap Chinese exports is “good news for inflation,” said Barret Kupelian, PwC UK chief economist, adding this trade diversion could help partly offset the energy price shock.

Article content

BOE Governor Andrew Bailey noted the Chinese effect earlier this year, arguing that it was behind relatively weak goods inflation. Fellow UK rate-setter Alan Taylor also highlighted evidence of “substantial trade divergence” and said the BOE’s initial estimates of the drag on UK inflation of around 0.2 percentage points in 2026 and 2027 were now “quite conservative.”

Article content

Article content

A flood of cheaper Chinese goods could soften the blow of an expected resurgence in inflation caused by the war in Iran driving up energy prices. The BOE expects a jump in motor fuel bills since the conflict broke out to boost inflation to 3.5% in March from 3% previously. A predicted rise in household gas and electricity bills later this year could lift inflation to over double the BOE’s 2% inflation target, according to economists.

Article content

China’s overall export price has been falling in all but two months since May 2023. That said, the overseas market remains attractive for Chinese factories grappling with excess capacity and cut-throat price competition amid a record deflationary cycle within the country.

Article content

“The UK has relatively strong purchasing power,” said Zhou Mi, a senior researcher at the Chinese Academy of International Trade and Economic Cooperation, a think tank affiliated with the Ministry of Commerce. “Given the significant inflationary pressure it has faced in recent years, it’s not surprising that consumers there are willing to buy Chinese products,” he said.