Tag: United Kingdom

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.

On Thursday, 20th March 2025 the BOE (Bank of England) held interest rates steady at 4.50%. Officials from Threadneedle Street warned that the bank was grappling with major uncertainties over the British and world economies and warned financial markets not to assume there would be interest rate cuts over the next few meetings. The MPC (Monetary Policy Committee) voted 8–1 to leave interest rates unchanged apart from Swati Dhingra (external member) who voted for a 25 basis point cut.

The vote of 8–1 by the MPC indicates a more hawkish stance, with both experts and analysts expecting a 7–2 vote, though most agreed that holding interest rates this time round was a shoe-in. Indeed, in the run-up to Thursday’s rate decision, some of the most dovish members of the MPC had already adopted a more cautious tone regarding interest rates.

A number of experts agreed that Thursday’s decision to keep interest rates on hold was strengthened by the banks’ increased uncertainty over domestic issues, plus April’s increases in energy and labour costs. In the bond markets, 10-year gilts rose as traders pulled back on bets on future rate cuts whilst the pound remained weaker against the US Dollar at circa $1.297.

The Bank of England is the latest central bank to adopt a more hawkish and wary tone in the face of President Donald Trump’s tariffs attacks on the United States’ closest allies. Indeed, the Governor of the Bank of England said, “Officials are having to react to fast-moving global events, with effects on inflation and growth far from certain”. He went on to say, “We have to be quite careful how we calibrate our response because we are still seeing a very gradual fall in inflation”. He also added that BOE officials were still waiting to see what the effects are of any tit-for-tat skirmishes on the tariff front.

The aura of uncertainty pervading from Threadneedle Street suggests that interest rates will remain static for the next two meetings, especially as experts suggest pay growth will be a key ingredient to future rate decisions by the MPC. Data produced on Thursday morning showed wage growth holding at a nine month high accompanied by a resilient labour market. However, minutes released by the MPC showed members as being not too worried about the strong pay data, though the minutes added that members would keep a close eye on wage settlements. However, whatever financial, employment, wages and inflation data is forthcoming, the spectre of Donald Trump’s tariffs and economic policies will loom large over many central banks’ policy decisions.