The Bank of England is expected to cut interest rates in the face of US tariffs threat
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.
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.
By PAN PYLAS
Associated Press
