BoE Cuts Rates Amid Tariff Uncertainty

The Bank of England lowered its key interest rate by 0.25 percentage points to 4.25% following a narrow 5–4 vote, citing global economic uncertainty driven by U.S. tariffs. The MPC was divided, with some members pushing for a deeper cut, while others preferred no change.

BoE cuts rates amid global trade tensions and economic uncertainty.

Impact of U.S. Tariffs

While direct effects on UK exports are limited, the BoE estimates global trade tensions will shrink UK GDP by 0.3% over three years and help bring inflation down sooner.

Revised Inflation and Growth Forecasts

Inflation is now expected to peak at 3.5% this year—lower than previously forecast—but still above the 2% target until early 2027. Growth in 2025 is revised slightly higher to 1%, though long-term forecasts remain weak.

Labour Market Softening

Wage growth is projected to slow from 6% to 3.75% by year-end, with unemployment edging up to 5% in 2026, reflecting easing labour market pressures.

Cautious Outlook and Scenario Planning

Governor Andrew Bailey emphasized a careful, data-driven approach. The BoE introduced new scenarios: one where global uncertainty slows demand, and another where weak productivity drives inflation higher.

Conclusion

The BoE’s rate cut highlights concern over global trade tensions and a weakening domestic outlook. With inflation easing and growth subdued, the Bank is likely to proceed cautiously, keeping future moves flexible amid uncertainty.