The Bank of England is likely to lower interest rates on Thursday. This comes as worries grow about employment and economic growth in the UK amid Donald Trump’s unpredictable trade policies.
This adjustment marks the Bank’s first response since Trump’s “liberation day” tariff announcement sent ripples throughout the global economy. It’s expected that the main base rate will drop from its current 4.5%.
Financial analysts are almost certain—nearly 100%—that a quarter-point reduction will occur. Some economists, however, suggest that a more substantial half-point cut would be necessary to aid businesses and households facing a dire global economic outlook.
Concerns are mounting that Trump’s trade war will significantly reduce trade activity, raise prices, and increase recession risks for U.S. consumers.
With fears that his tariff strategy and erratic policy choices might disrupt global economic stability, confidence among businesses and consumers has sharply declined in several countries, including the UK.
Edward Allenby, an economist at Oxford Economics, remarked that the UK’s growth forecast was already looking daunting, and the recent U.S. tariff move has intensified the challenges.
He added, “A cut in May seems inevitable, and the Monetary Policy Committee may take a less cautious stance on rate cuts.”
As economic uncertainties loom, markets hope the U.S. Federal Reserve will hold interest rates steady, despite facing significant criticism from Trump.
Last month, Trump referred to Fed Chairman Jerome Powell as “a major loser,” pushing back against the central bank’s independence amid a turbulent bond market.
There are increasing fears that the tariffs could propel inflation, which might lead central banks to maintain high interest rates. But economists argue that these border taxes could actually reduce inflation in other nations.
This occurs because tariffs could redirect trade flows, resulting in an abundance of goods in the UK and EU. Already, signs indicate a steep decline in trade volumes between the U.S. and its primary trading partners, suggesting a drop in container shipping activity.
Despite UK inflation decreasing unexpectedly to 2.6% in March, labor market data imply that companies are hesitating on hiring due to escalating taxes and waning consumer confidence.
Forecasts suggest inflation might peak at 3.7% this summer with surging energy and food prices, nearly double the Bank’s target of 2%. Analysts believe the combination of rising inflation and the economic toll of Trump’s tariffs has prompted a need for further borrowing cost reductions.
At a recent IMF conference, Bank governor Andrew Bailey cautioned about a “growth shock” resulting from Trump’s policies, noting that the IMF has downgraded the UK’s growth forecast for 2025 to 1.1%, down from 1.6% previously predicted.
Some members of the Bank’s Monetary Policy Committee could advocate for more significant cuts. External economist Swati Dingra has long argued for deeper cuts in borrowing costs.
Analysts at Morgan Stanley stated that a half-point cut on Thursday would present a “risk” to their forecast of consecutive cuts by year’s end.
They added, “The rationale behind the potential 50 basis point cut is clear. Why is the UK economy unable to meet target levels given the weak job market?”
“We firmly believe the sooner the BOE brings rates down to around 3.5%, the better.”
