London
CNN
The Bank of England has just reduced key interest rates by a quarter point, pointing to a decrease in UK inflation.
This cut, which many were expecting, brings the main borrowing cost in the UK down to 4.25%. It’s the fourth time the central bank has lowered rates since last August.
In a statement, the central bank noted “significant advances” in lowering inflation over the past couple of years have contributed to these rate reductions.
Yet, there’s also concern about the trade environment, particularly from US tariffs linked to a trade war that’s created uncertainties surrounding global trade policy.
Despite this, the central bank maintains that the negative effects on UK growth and inflation are probably less severe than anticipated.
During a press conference, Bank of England Governor Andrew Bailey expressed optimism at the potential announcement of UK-US trade deals later in the day.
“It could really help ease uncertainty,” he mentioned, explaining that the UK, being a “very open economy,” feels the impacts of tariffs and trade policies from the US and other nations.
“If the UK contract is actually revealed this afternoon, I hope it marks the beginning of many more,” he added.
Just last month, he had expressed worries about a possible “growth shock” stemming from US tariffs affecting the UK.
In a CNBC interview, Bailey indicated that the unpredictable nature of US trade policy might influence businesses to hold back on investments, while consumers might hesitate to spend.
A survey conducted in April showed UK production was already on the decline, with the PMI index reaching its lowest point since November 2022.
Additionally, in April, the International Monetary Fund lowered growth forecasts for several countries, including the UK, joining economic leaders in raising alarms about the impact of US tariffs.
Bailey pointed out that increased US tariffs could potentially help lower UK inflation, allowing the Bank of England to have more flexibility in cutting rates if needed.
He mentioned that products might shift from the US to the UK, particularly through increasing volumes of low-cost Chinese exports that could be redirected. Increased market availability tends to foster competition, which usually drives prices down.
