Interest Rates Archives

Borrowing Costs for the United Kingdom Highest Since 1998 As Sterling Falls 1.5%

Written by IntaCapital Swiss on September 3, 2025. Posted in News & Reports, Uncategorized. Leave a Comment

Yesterday, 2nd September, the pound slipped a full 150 basis points against the US Dollar (came back to a 1% drop at $1.34) on the back of increasing borrowing costs on the 30-year gilt (UK Government Bond) which attained its highest level since May 1998. Thirty-year gilts rose to 5.72% and some commentators who are sympathetic towards the Labour government suggested that the coincidental global sell-off in government bonds was the main reason for the increase in yields. Indeed, the Treasury Minister, Spencer Livermore, when questioned on this subject in the House of Lords advised that gilt yields have risen in line with global peers and moves have been orderly.

In reality, experts in this arena suggest that the sell-off in long-dated UK government bonds is due more to global investors in the United Kingdom who are worried that the government is showing a lack of fiscal responsibility. Elsewhere other experts chimed in saying that as inflation has been sticky and remains the highest of the G7 countries is yet another reason for the sell-off in the 30-year issues. Equally damning, a number of economists and analysts suggest that the central issue is welfare expenditure which should it remain on what is generally agreed an unsustainable path, confidence will be further eroded resulting in more long-gilt selloffs. Other concerns for financial markets and investors alike has been the sudden rush in the number of potential new government policies reminding investors how weak the United Kingdom’s fiscal position is, which has, according to a number of financial commentators, also helped facilitate the rush to sell long-dated gilts.

However, there has been one reassuring sign in the UK government bond market, as on the day long-dated gilts borrowing cost hit the highest since 1998, the United Kingdom sold a record GBP 14 Billion of new benchmark 10-year government bonds with orders being oversubscribed to the tune of GBP 141.2 Billion. The notes which are due in October 2035 were priced according to those close to the sale at 8.25. basis points over the equivalent/applicable benchmark* and carry a coupon of 4.75%. Experts noted that the sale was ten times oversubscribed and with rates on the 10-year bond the highest since January would increase the case for buying this bond despite the fiscal uncertainty of the UK’s economy.

*Equivalent/Applicable Benchmark – This benchmark is known as SONIA (Sterling Overnight Index Average) which replaced sterling LIBOR (London Interbank Offer Rate) which uses real overnight transaction data to provide a more robust benchmark and is now the standard for new sterling denominated contracts.

The problem for the Chancellor of the Exchequer and the Labour Party is the cost of borrowing keeps increasing as can be seen by the latest GBP 14 Billion sale of 10-year bonds (the yield being the highest among the Group of 7 nations). Add to that the rise across the board in UK government bond yields, financial experts predict that the government will soon have to raise taxes to keep them within their own set of self-imposed fiscal rules. Borrowing costs are a key pillar that holds up the government’s fiscal arithmetic, and with the autumn budget looming high on the horizon the Prime Minister and the Chancellor could find themselves at the mercy of bond yields.

The Bank of England Cuts Interest Rates

Written by IntaCapital Swiss on August 11, 2025. Posted in News & Reports, Uncategorized. Leave a Comment

On Thursday, 9th August the BOE (Bank of England) cut interest rates by 25 basis points to 4% and in the process, the MPC (Monetary Policy Committee) took borrowing costs to its lowest level since March 2023. However, this was no ordinary MPC meeting as for the first time in its 23-year history the vote was deadlocked and the committee took the unprecedented step of voting twice, with the vote finely split by 5–4 in favour of a rate cut. The decision by the MPC saw two senior voting members (Chief Economist Huw Pill and Deputy Governor Clare Lombardelli) vote against Governor Andrew Bailey, with officials being deeply divided over the direction of interest rates, with the United Kingdom not only experiencing a cooling labour market but a resurgence in inflation.

The last time the MPC cut interest rates was in May of this year and since then the opposition to interest cuts has unexpectedly grown, however as seen above the two dissenting votes for a rate cut helped win the day. The BOE is still sticking with its overall guidance informing the financial markets that rate cutting will be “gradual and careful” whilst warning of a cooling in demand for workers and an emerging slack in the economy. The Governor of the BOE Andrew Bailey reiterated previous comments by saying “it remains important that we do not cut bank rate too quickly, or by too much”. The MPC also pointed out that they expect inflation to hit 4% in September – up from the previously advised figure of 3.7%.

Elsewhere tax data suggests that since the Labour Government announced plans to increase employers’ payroll tax and the minimum wage, 185,000 jobs have been lost. Data from the BOE’s own survey of firms show a growing stagflation risk, and in the upcoming year, they expect businesses to put up their own prices by circa 3.7%. Indeed, the MPC further advised that since May of this year upside risks to the consumer price had moved slightly higher with particular emphasis towards rising food bills, and they went on to say that the outlook for employment growth over the next 12 months has deteriorated and the expectations on wage growth remains at 3.6% which is somewhat sticky and has become a bit of a hot potato.

Governor Bailey at a press conference once again insisted that interest rates are on a downward path and that the current inflation figure will only be temporary, but he was somewhat evasive and wary about when they will announce the next interest rate cut. Money market traders have reduced their bets on a November cut to under 50%, especially as Governor Bailey went on to say, “there is, however, genuine uncertainty now about the course of interest rates”. Experts suggest that the BOE is very worried that inflation may well persist as the current headline figure is way above the benchmark target, and there is the possibility that policymakers are considering ending the easing cycle.

Analysts suggest that there are interesting times ahead at the BOE especially as the world waits and sees the effect of President Trump’s tariffs on world trade and the global economy. Furthermore, Thursday’s interest rate cut was the most divisive under the five-year stewardship of Governor Bailey, plus no Deputy Governor has ever voted against Governor Bailey, that is until Claire Lombardelli’s dissenting vote. Such dissent from the Deputy Governor is highly unusual and highlights the deep fractures within the MPC as to how to tackle the resurgence in the current price pressures. The labour party happily points out that under their government borrowing costs have been coming down, but those rates dictated by the financial markets have been going in the opposite direction with the 30-year gilt yield prior to the BOE’s interest rate cut standing at 5.43%. After the BOE’s announcement last Thursday the 30-year gilt yield stood at 5.32%. Some commentators have made a somewhat damning point in that perhaps within the Bank of England there are those who are perhaps politically motivated and not so independent as we are led to believe.

Some experts suggest that the MPC in lowering the borrowing rate is in direct conflict with their prediction of inflation increasing and this despite the fact the United Kingdom has the highest inflation rate within the G7. Furthermore, analysts point out that since April, the pound has dropped 1.5% and 2.5% against the US Dollar and the Euro respectively leaving the pound open to further falls whilst pushing inflation up through higher import prices.

The current disagreements will also impact policymakers and their decisions as to how to tackle the current uplift in inflation and with the Governor and Deputy Governor seemingly split on monetary policy, Governor Bailey’s vote will become more and more important as the United Kingdom approaches the end of the year.

The Federal Reserve Keeps Interest Rates on Hold

Written by IntaCapital Swiss on July 31, 2025. Posted in News & Reports. Leave a Comment

On Wednesday, 30^th July and for the fifth straight time, the Federal Reserve’s FOMC (Federal Open Market Committee) kept interest rates steady at 4.25% – 4.50%. The committee voted 9 – 2 to keep interest rates on hold with the two dissenting voices belonging to Governor Christopher Waller and Governor Michelle Bowman. Both governors are appointees of President Donald Trump and experts point out that such dissension from political appointees has not occurred for over 30 years which is a sign of both political pressure and economic uncertainty being felt by the Federal Reserve. Chairman Powell indicated he was not concerned with the dissenting voices but he did say “On the dissents, what you want from everybody and also from a dissenter is a clear explanation of what you are thinking and what arguments you are making”.

Officials from the Federal Reserve downgraded their view of the economy saying “recent indicators suggest that growth of economic activity moderated in the first half of the year” as opposed to previous statements where growth was characterised as expanding at a solid pace. Interestingly, analysts have pointed out that today’s interest rate decisions were made without key data, and the Chairman of the Federal Reserve Powell has pointed out that decisions are currently data driven. This key data is the Commerce Department’s Personal Income and Outlays report, (due out 31^st July), which provides essential data on household spending and income, and the Personal Consumption Expenditures price index which is the Federal Reserves favoured inflation gauge.

Following the FOMC meeting, Chairman Powell said the central bank has confidence in the economy of the United States and that it is strong enough to hold interest rates steady as it determines how the tariff policy of President Trump ultimately plays out and their effect on the economy. He went on to say “Higher tariffs have begun to show through more clearly to prices of some goods, but their overall effects on economic activity and inflation remain to be seen. A reasonable base case is that the effects on inflation could be short lived, reflecting a one-time shift in the price level. But it is also possible that the inflationary effects could instead be more persistent and that is a risk to be assessed and managed”.

Despite political pressure and personal insults from President Trump to Chairman Jerome Powell the Federal Reserve held interest rates steady. Despite many experts predicting a rate cut at the next meeting of the FOMC (16^th – 17^th September), the financial markets pared back bets expectations for a rate cut, whilst interest rate futures indicated a 50/50 chance of a rate cut in September down from 60%. Data released showed that GDP had increased on an annualised basis by 3% in Q2 after Q1 showed a shrinking of 0.5%, experts put the swing down to companies front-loading of imports to avoid tariffs. Consumer spending advanced at its slowest pace over Q1 and Q2 since the pandemic.

Chairman Powell has made it clear that there is still room to hold rates, something that will no doubt send President Trump into a fit of rage. Data released since the FOMC’s last meeting on 17th – 18th June has given officials little reason to shift from their “wait and see” policy stance, which has been in effect since Donald Trump’s elevation to the White House. Whilst there will be a cornucopia of data between now and the September meeting of the FOMC, experts point out that the Jackson Hole Economic Symposium (in Kansas City) is being held between 21st – 23rd August. The Federal Reserve Bank of Kansas City hosts central bankers, policymakers, academics and economists from around the world, and Chairman Powell has been known to indicate forthcoming policy shifts, so perhaps financial markets and President Trump will get a peek into future Federal Reserve policy.

The ECB Leaves Interest Rates Unchanged

Written by IntaCapital Swiss on July 25, 2025. Posted in News & Reports. Leave a Comment

Today the ECB (European Central Bank) held interest rates steady with the key deposit rate* holding at 2%. To date, the ECB has cut interest rates eight times since June 2024 and President Christine Lagarde advised that the economy was now in a good place and growth is in line with projections or perhaps a little better. The president went on to say that having left interest rates unchanged that the ECB was now in a “wait and see mode” with the ECB shunning calls to reduce the cost of borrowing.

*Key Deposit Rate – The European Central Bank’s (ECB) key deposit rate is currently 2.00%. This rate is the interest banks receive when they deposit money with the central bank overnight. The ECB also sets other key interest rates, including the main refinancing rate (2.15%) and the marginal lending facility rate (2.40%). These rates are used to influence borrowing costs and economic activity in the Eurozone.

President Lagarde as advised above confirmed that the economy is growing in line with expectations however, she reminded the markets of the risks with the economy tilted towards the downside and said,” higher actual and expected tariffs, the strong euro and persistent geopolitical uncertainty are making firms more hesitant to invest”. She went on to say that “Wage increases are coming down and as growth has been developing in a relatively favourable way means we are now confident that the inflation shock of the last few years is behind us and our job is to look at what’s coming”.

The Vice President of the ECB Luis de Guindos, (previously Spain’s Minister of Economy, Industry and Competitiveness 2011 – 2018) warned growth will be almost

flat in Q2 and Q3 due to businesses front-loading to sidestep higher levies. Analysts and traders in the financial markets are betting that there will be one more rate cut before the end of the year with recent data released suggesting that a number of economists favour a rate cut at the next meeting on 11^th/12^th September. However, an executive member of the board Isabel Schnabel confirmed that the eurozone’s 20 nation economy is resilient and advised that the bar of another rate cut is very high.

Despite the comments Schnabel financial market experts advise that the decision to hold rates could be breather before steeper cuts than currently predicted in order to prevent the eurozone’s economy from stalling and to block a period of deflation*. Indeed, the threat of deflation is in the air due to disinflation* being rampant across the eurozone, plus intensifying Chinese competition and the ongoing threat of tariffs from President Donald Trump and his administration. As President Lagarde mused, we certainly will have to “wait and see”.

*Difference Between Disinflation and Deflation – Disinflation refers to a decrease in the rate of inflation, meaning prices are still rising, but at a slower pace. Deflation, on the other hand, is a sustained decrease in the general price level of goods and services, meaning prices are actually falling.

Swiss National Bank Cuts Interest Rates to Zero

Written by IntaCapital Swiss on June 23, 2025. Posted in News & Reports. Leave a Comment

On Thursday 19th June, the SNB (Swiss National Bank) announced their benchmark interest rate was being cut by 25 basis points to zero and is now standing very close to a negative interest rate for the first time since 2022. However, the SNB has not ruled out moving the interest rate into negative territory and the Chairman, Martin Schlegel, stressed that such a move would be subject to great deliberation. The current decision has confirmed that the interest rate is the lowest against their global counterparts.

Chairman Schlegel in a radio interview said, “We are aware that negative interest rates are a challenge for many of our stakeholders in the economy. Negative rates also have negative side effects for savers, bankers, pension funds, and so on – we are very aware of that. If we were to lower rates into negative territory, then the hurdles would certainly be higher than with a normal rate cut in positive territory. When questioned about a rate cut at the next meeting on Thursday 25th September 2025, Chairman Schlegel sat on the fence stressing that officials will weigh data and forecasts at that time.

The cut in interest rates by a ¼ of 1% is the sixth consecutive cut by the SNB forced on the bank by the current strength of Swiss Franc which has caused consumer prices to drop for the first time in four years. President Schlegel was quoted as saying, “the SNB is attempting to counter lower inflationary pressure” and went on to stress “We will continue to monitor the situation closely and adjust our monetary policy if necessary. The SNB had indicated back in March of this year that monetary easing was probably finished, but the currency’s role as a safe haven from global economic turmoil forced their hand, and they have hinted that more cuts may be necessary to stop inflows of the Swiss Franc.

Once again President Trump and his tariff policy which has disrupted global trade underscores the impact it has had on Switzerland. Dramatic shifts in policy by the current administration in the United States has certainly deeply worried investors with the result the Swiss Franc has risen to its highest level against the US Dollar, whilst in Q1 of this year inflation was driven below zero for the first time since March 2021. Another option to control the Swiss Franc is intervention in the foreign exchange markets, but this brings political pressure as Donal Trump has already accused Switzerland of being currency manipulators, a statement vehemently denied by Chairman Schlegel.

There is disagreement within the financial markets with some experts suggesting that unless the situation drastically changes between now and September that the current decision to cut interest rates to zero paves the way for a further cut in September pushing interest rates into negative territory. However, countering this argument other experts have said that unless higher tariffs cause a significant downturn in the Swiss economy the SNB were likely to hold at 0.00%. Current bets on another rate cut have been factored in by money markets at 57%. However, Switzerland’s two-year bond yield, which is highly rate sensitive, remains in negative territory, is a sign that financial markets still anticipate a September cut.

Bank of England Holds Interest Rate Steady

Written by IntaCapital Swiss on June 23, 2025. Posted in News & Reports. Leave a Comment

On Thursday 19th June the BOE (Bank of England) held benchmark interest rates steady at 4.25% – 4.00% with the MPC (Monetary Policy Committee) voting 6 – 3 leaving rates on course for a potential cut at the next meeting on August 7th, 2025. Two external members Alan Taylor and Swati Dhingra plus the Deputy Governor David Ramsden preferred a quarter point reduction, however experts had already predicted a 6 to 3 vote in favour of holding rates steady. The money markets taking its lead from a more dovish vote by the MPC increased the odds on further interest rate cuts, priced in a further two ¼ of 1% cuts by June 2026. Interestingly, even before today’s announcement the financial markets had already priced in an 80% chance of a ¼% cut in August.

Governor Bailey warned that the world is in a highly unpredictable space with concerns that the current conflict between Iran (a major oil producer) and Israel could affect energy costs by sending them higher, thus negatively impacting prices by driving them higher. The BOE confirmed it is sensitive to events in the Middle East and their impact on oil prices where prices could be driven higher, which could then negatively impact the UK economy. The BOE noted that since their last meeting in May gas prices are up by 11% and oil had risen by 26%, however service inflation* an important indicator for the BOE fell in April from 5.3% to 4.7%

*Service Inflation – is a component of core inflation (excludes energy and food services) and reflects the rate at which the prices of services are increasing or decreasing in an economy. It helps economists, financial experts, and policymakers understand the underlying persistent inflationary pressures in an economy. Energy and food prices are excluded and can be volatile and subject to short-term fluctuations but are included in headline inflation.

Officials from the BOE noted that inflation is expected to edge higher in the coming months peaking at 3.7% in September from 3.4% in April. Experts have noted that the September figure is higher than the BOE’s benchmark target figure of 2%, however officials suggest that this figure will slowly come down with Chairman Andrew Bailey confirming “rates are on a downward path”. Officials also confirmed that they expect the economy to grow by 0.25% in Q2 of this year and statistics released by the ONS (Office for National Statistics) showed food prices had risen by 4.4% in the year to May2025, and overall goods prices rose by 2.0% the most since November 2023.

Analysis issued by the BOE suggest that officials and policymakers are feeling less pessimistic regarding the impact of Donald Trump’s tariffs on the UK and global economy, a change of opinion from their more pessimistic outlook last month. However, they continue to stress whilst their outlook has changed, uncertainty over trade could still negatively impact the UK economy. The MPC whilst still trying to balance a cooling economy against elevated inflation is finding their work is being complicated by the Israel/Iran conflict and the trade policies of President Donald Trump.

Federal Reserve Hold Interest Rates Steady

Written by IntaCapital Swiss on June 19, 2025. Posted in News & Reports. Leave a Comment

On Wednesday 17th June, and for the fourth straight meeting, the FOMC (Federal Open Market Committee) announced that benchmark interest rates will remain steady at 4.25% – 4.50% with policymakers voting unanimously for the hold, but also indicating that borrowing costs will probably fall between now and the end of the year. However, Federal Reserve Chairman Jerome Powell reiterated along with the FOMC statement that policymakers will wait and see how economic data evolves moving forward.

The FOMC also released a new set of economic forecasts being the first set of forecasts since President Donald Trump announced his tariff programme on April 2^nd this year famously referring to them as Liberation Day. The FOMC’s forecasts show that for the rest of 2025 they expect higher unemployment, weaker growth, and higher inflation, thus by years end unemployment will be slightly up from the previous estimate to 4.5%, economic growth will be at 1.4% down from 1.7%, and inflation at 3% up from 2.7%.

Experts suggest that the Federal Reserve is in a bit of a quandary with higher inflation suggesting an increase in interest rates whilst falling growth suggests a lowering of interest rates to stimulate the economy. President Trump has persistently said the Federal Reserve should lower interest rates and even before the announcement yesterday President Trump referred to Chairman Powell as stupid. However, officials from the Federal Reserve do expect upward pressure on prices as the expanded use of tariffs by President Trump begin to weigh on economic activity.

Analysts suggest that so far the economy of the United States has proved resilient, as in recent months unemployment has held steady and inflation has risen less than expected. However, Chairman Powell has added that officials are beginning to see some effects from tariffs with more to come over the next few months but he did re-emphasise the Federal Reserve’s commitment to ensure price pressure does not become more persistent. Many experts in the financial markets have forecasted a meaningful rise in inflation but Chairman Powell countered with “the jobs market is not crying out for a rate cut” whilst adding that tariffs are an unavoidable cost increase to consumers and businesses.

Chairman Powell’s take on tariffs is that the United States Economy has not yet seen the full effects of tariffs on prices for consumers and has confirmed the Federal Reserve will hang tight until data gives us a better idea of what’s going on. As part of his post-meeting conference with the media he said, “for the time being we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policies”.

That said, experts within the financial markets have said that according to interest rate futures they see a more than 70% chance of a rate cut in September, however some economists suggest that it will take until then to at least see the impact of all of the administrations policies on immigration, spending and the impact on trade. They are therefore at odds with those in the financial markets proving that as tariffs and Donald Trump have become central to the Federal Reserve’s thinking.

The European Central Bank Cuts Interest Rates

Written by IntaCapital Swiss on June 5, 2025. Posted in News & Reports. Leave a Comment

Today the ECB (European Central Bank) for the eighth time in a year cut interest rates by 25 basis points leaving the deposit rate standing at 2%. The governing council were unanimous in their decision to cut three key interest rates with the President of the ECB Christine Lagarde saying that following the eighth reduction the ECB is coming to the end of the line with regard to interest rate reductions and their monetary policy cycle. The President told reporters “At the current level of interest rates, we believe that we are in a good position to navigate the uncertain conditions that will be coming up”.

Officials from the ECB describe inflation as “currently around” the 2% target. New quarterly projections issued by the ECB show inflation in 2026 at 1.6% which is below the current target, with the economy expected to expand by 1.1% in the same year. In another statement issued by the ECB it was said that trade uncertainty is likely to weigh on business investment and exports, however growth will be boosted later by government investment in infrastructure and defence.

President Lagarde also referred to growth skewed to the downside but was cheered by the fact that easier financing, a strong labour market and rising incomes should help firms and consumers withstand the fallout from a global environment suffering from severe volatility. She went on to say that despite a stronger euro weighing on inflation in the near term and decreasing emerging costs, inflation is expected to return to target in 2027.

There is of course the continuing problem of the Trump2 Presidency and tariffs. Currently most European exports are facing tariffs of 10% (except steel and aluminium which now has a global tariff of 50% except the United Kingdom who are paying 25%), however levies will rise to 50% should trade negotiations between the European Union and the United States remain deadlocked and no agreement is reached by July 9th 2025. However, the German Chancellor Friedrich Merz will shortly be meeting with President Trump and one of the main topics if not THE main topic will be trade, and Europe will hope something positive will come from this meeting.

The cut in interest rates had been largely priced in by traders with LSEG (London Stock Exchange Group) data showing the ¼ of 1% cut had a 90% chance of going through before the announcement was made. Financial markets have trimmed their bets on another ¼% reduction in rates as this move no longer seems certain. The economic policies of President Trump, his attacks on the Chairman of the Federal Reserve and his flip flopping on tariffs, has dented confidence in the U.S. economy, has strengthened the Euro, brought energy costs down and had a positive effect on European inflation. All eyes will be on July 9th, the set by Donald Trump for the EU and the U.S to agree a trade deal.

Will the UK’s Inflation Figures Strengthen the Bank of England’s Hawkish Bias?

Written by IntaCapital Swiss on May 28, 2025. Posted in News & Reports. Leave a Comment

The latest data released by the ONS (Office for National Statistics), shows the United Kingdom’s inflation rate, the CPI (Consumer Price Index), jumped to 3.5% from 2.6% in April of this year, driven mainly by increases in water, energy and other price increases. Service inflation was seen accelerating from 4.7% to 5.4% and is an area the Bank of England watches closely for signs of underlying price pressure, and Bank officials had expected this figure to be 5%. Elsewhere Core Inflation (does not include food and energy) climbed to 3.8% which is the highest it has been since April 2024. Earlier this month, the Bank of England’s MPC (Monetary Policy Meeting) voted on yet another rate cut where two members voted to hold rate cuts, and the above figures bear out their cautiousness.

The Bank of England’s target inflation figure is 2%, and the current rate of inflation is well above that target and furthermore, the Bank of England expected this figure to rise and peak at 3.7% in September of this year. Other data shows consumer prices rising by 1.2%, the biggest rise for 24 months. Consumers in April were hit with a number of increases such as volatile air fares (up 16.2% year on year), water bills, local authority taxes, train fares and an across-the-board basic cost increase, which added to a pretty damning April for the government. However, analysts have noted that the Easter holidays were probably responsible for the jump in airfares (biggest month-on-month jump for April on record) and expect this figure to diminish before the summer holidays begin.

Experts suggest the financial markets are in favour of an end of year interest rate of 4% for the first time since the end of March/early April. This sentiment translates into one more rate cut this year suggesting that the Bank of England’s MPC will slam the door shut on an interest rate cut at its next interest rate meeting on Thursday 19th June 2025, with traders cutting an August interest rate cut from 60% to 40%. Markets also remember comments from the Bank of England’s Chief economist, Hugh Pill, who voiced in a hawkish speech that he feared interest rates were not high enough to keep the lid on inflation, and analysts suggest that it would not take too much for the swing voters on the MPC to move into the hawk’s camp especially after what the Consumer Price Index had recently shown.

Indeed, Mr Pill voted against a rate cut of ¼ of 1% earlier in May where he also said, “In my view, that withdrawal of policy restrictions has been running a little too fast of late, given the progress achieved thus far with returning inflation to target on a lasting basis. I remain concerned about upside risks to the achievement of the inflation target”. We will wait on the MPC’s meeting in June but the likelihood according to experts is a rate hold, plus we will also wait and see if Donald Trump’s economic policies impact further the global economy with any fall-out influencing decisions taken by bank officials. Elsewhere in April, it has been revealed that government borrowing for the month was £10 Billion, with data confirming this figure to be a new record. All in all, not the best 30 days with newspapers dubbing the month as “Awful April”.

Bank of England Cuts Interest Rates

Written by IntaCapital Swiss on May 8, 2025. Posted in News & Reports. Leave a Comment

Today the BOE (Bank of England) announced a cut in interest rates with the MPC (Monetary Policy Committee) advising a reduction of 0.25% to 4.5%. The committee was divided, with five members voting for a ¼% cut, two members for a ½% cut, and the remaining two members voting to hold rates. Markets were surprised by the cautious approach, with President Trump’s tariff war weighing heavily on the outlook of the United Kingdom’s growth.

Caution was the watchword coming out of the MPC despite the divided votes saying that monetary policy easing should be “gradual and careful” in the light of volatility in the global economy which has been the result of President Trump’s wide-ranging tariffs. Forecasts by the BOE suggest that inflation will peak in Q3 2025 at 3.5% with growth being anticipated at 1% by close of business 31st December 2025, increasing to 1.25% for 2026 and then unchanged for 2027.

Following the decision by the MPC, Governor Andrew Bailey said in a statement “inflationary pressures have continued to ease so we have been able to cut interest rates today”. He went on to say “The past few weeks have shown how unpredictable the global economy can be. That is why we need to stick to a gradual and careful approach”. Traders had anticipated a bigger cut and were surprised by the decision, with one expert saying that this clearly is a hawkish cut.

The day before the MPC announcement was made, President Donald Trump revealed that the United States was about to make a trade deal with a major country, (later reported as the UK), and many commentators were then suggesting this would nudge the Bank of England into making a larger cut than they did. However, the BOE has made it crystal clear that they feel the greatest threat to the UK’s economy is from the global impact of U.S. tariffs. The BOE has given itself room to manoeuvre by saying “it will remain sensitive to heightened unpredictability in the economic environment and will continue to update its assessments of risks”.

As always, President Donald Trump is in the frame when it comes to important economic decisions, especially when it comes to Central Banks’ monetary policies on interest rates. As such, the BOE appears completely divided over interest rate decisions and which way monetary policy will go. Several experts have surmised that the BOE have been forced into being reactive rather than proactive or forward looking. Markets are suggesting another rate cut in August 2025, but for now the outlook remains uncertain.

Tag: Interest Rates