The Bank of England is ready to lower interest rates because there are concerns about the effects of Trump’s tariffs
The Bank of England is likely to lower interest rates on Thursday due to growing worries about the negative effects of Donald Trump’s unpredictable global trade policies on UK jobs and economic growth.
Markets suggest there’s almost a 100% chance the Bank will reduce its key base rate by a quarter-point, from 4.5% to 4.25%. However, some economists, including a former deputy governor of the Bank, believe a larger cut of half a point is needed to help businesses and households deal with the worsening global situation.
Economists warn that Trump’s trade policies could slow down global trade, raise prices for US consumers, and increase the risk of a recession. In other countries, including the UK, business and consumer confidence has dropped because of fears that these tariffs and his unpredictable actions will harm the global economy.
“The UK’s short-term growth outlook was already tough, and the recent US tariff announcements have made things harder,” said Edward Allenby, a UK economist at Oxford Economics.
“A rate cut in May is certain, and the Bank of England could show that it is ready to cut rates more quickly in the future.”
In a critical week when central banks on both sides of the Atlantic are reacting to the ongoing economic crisis, the financial markets expect the US Federal Reserve to ignore strong criticism from Trump and keep interest rates steady on Wednesday.
Last month, Trump called the Fed chair, Jerome Powell, a “major loser” and said he should be removed quickly, though he later backed off after the bond market showed signs of trouble.
While there are worries that the president’s tariffs could raise inflation, making central banks keep rates high, economists say the tariffs might actually lower inflation in other countries.
This could happen because tariffs may cause goods meant for the US market to be sold elsewhere, creating an oversupply in the UK and EU markets. The slowdown in economic activity will also reduce inflation pressures. There are already signs of reduced trade between the US and its biggest partners, including a sharp drop in container shipping.
In March, UK inflation dropped more than expected to 2.6%. However, data from the job market shows that companies are hiring less as they deal with higher taxes and low consumer confidence.
Inflation is expected to rise again to 3.7% this summer because of higher energy and food prices, almost double the Bank of England’s target of 2%. Some analysts believe that the current high interest rates, combined with concerns about the impact of Trump’s tariffs on the economy, mean the Bank should cut borrowing costs.
Andrew Bailey, the governor of the Bank of England, warned at the IMF meetings in Washington last month that the UK economy could face a “growth shock” due to Trump’s policies. The IMF also lowered its 2025 growth forecast for the UK to 1.1%, down from the 1.6% it had expected in January before the tariffs were announced.
Some analysts believe that members of the Bank’s rate-setting committee, including external economist Swati Dhingra, who has long supported bigger cuts in borrowing costs, might push for a larger rate cut.
Analysts at Morgan Stanley said that a half-point cut this Thursday would be risky, as they expect smaller cuts of a quarter-point to bring the rate down to 3.25% by the end of the year.
They argued that with a weak job market and low wage growth, the UK doesn’t need such high interest rates of 4.5%, especially with the risk of a global economic slowdown. They believe the Bank of England should lower rates to around 3.5% as soon as possible.
Published: 7th May 2025
For more article like this please follow our social media Twitter, Linkedin & Instagram
Also Read:
New Trade Agreements Expected to Boost UK Export Markets
Solar Energy Installations in the UK Hit Record High in 2025
“UK Developers Focus on Sustainable Green Building Projects
