The Bank of England (BoE) is now widely expected to cut interest rates in May, as escalating trade tensions sparked by Donald Trump’s tariff hikes weigh heavily on the global economic outlook.
President Trump has imposed a 10% tariff on all UK exports to the US (although a 90-day pause on proposed tariff hikes has been called), claiming it’s a response to British duties on American goods. The move follows US levies of 25% on UK steel, aluminium and cars. The UK Government has so far refused to retaliate, warning that it won’t be rushed into trade decisions.
With financial markets jittery and the risk of a global recession rising, investors expect at least three rate cuts from the BoE this year – up from two earlier. The Bank Rate currently stands at 4.5%, but three 25 basis-point cuts would bring it down to 3.75% by December. A former BoE policymaker has called for even faster action.
The Monetary Policy Committee (MPC) will next meet on 8 May. While the BoE has remained cautious about inflation, the threat to growth is becoming harder to ignore. After briefly hitting the 2% inflation target in May last year, inflation has since risen to 2.8%.
Meanwhile, BoE Governor Andrew Bailey has been nominated to chair the Financial Stability Board, a global organisation monitoring financial system risks. His appointment comes at a time of heightened concern about market volatility and the broader economic impact of US trade policy.
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