The Bank of England is expected to cut interest rates in the face of US
tariffs threat
[May 08, 2025] By
PAN PYLAS
LONDON (AP) — The Bank of England is widely expected to look past
near-term inflationary pressures in the British economy and opt to cut
interest rates on Thursday as a result of the potential shock to growth
emanating from the tariff policies of the Trump administration.
Most economists believe it's a near-certainty that the nine-member
Monetary Policy Committee will sanction a quarter-point reduction in the
bank's main interest rate, to 4.25%. The decision is to be announced at
12:02 p.m., two minutes later than usual as a result of the two-minute
silence for Victory in Europe Day. There's some speculation that some
members may opt for an even bigger half-point cut.
Economists are going to be particularly interested in the bank's
accompanying economic forecasts as they will be the first since U.S.
President Donald Trump made his tariff announcement in early April.
Though most tariffs were paused for 90 days following the ensuing market
turmoil, including the 10% baseline tariff applied to U.K. goods
entering the United States, the backdrop for the global economy remains
highly uncertain.
“With U.S. trade policy presenting a new demand shock, there have been
early signs that the MPC is willing to adopt a more proactive approach
to loosening policy,” said Edward Allenby, U.K. economist at Oxford
Economics.
The forecasts, particularly those regarding growth and inflation, will
provide a steer as to whether a more proactive approach is likely. Since
it started cutting interest rates in August 2024 from the 16-year high
of 5.25%, the MPC has been consistent in lowering borrowing costs every
three months.
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 The imposition of U.S. tariffs on
British goods, and the potential for a wider global trade war, has
the potential to weigh on growth as well as oil prices, which would
consequently depress price pressures by lowering demand.
Though U.K inflation stands at 2.6% and could well
hit double the bank’s target rate of 2% in coming months as a result
of a raft of price increases in April, such as domestic energy and
water bills, economists think rate-setters will opt for a cut, given
the anticipated slowdown.
Unlike the Bank of England, and the European Central Bank, which
last month cut interest rates too, the U.S. Federal Reserve kept
rates unchanged Wednesday as its policymakers wait to see how
Trump’s tariffs affect the U.S. economy before making any moves.
Inflation rates around the world are way down from levels seen a
couple of years ago, partly because central banks dramatically
increased borrowing costs from the near zero rates during the
coronavirus pandemic. Prices then began to shoot up, first as a
result of supply chain issues and later because of Russia’s
full-scale invasion of Ukraine, which pushed energy costs higher.
As inflation rates have declined from multidecade highs, central
banks, including the Fed, have started cutting interest rates,
though few, if any, economists think that rates will fall back to
the super-low levels that persisted in the years after the global
financial crisis of 2008-2009 and during the pandemic.
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