Bank of England expected to cut UK interest rates today as trade war threatens economy

The Guardian

08-05-2025

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Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
The Bank of England is in the spotlight today, as policymakers at the UK central bank set interest rates in the face of a global trade war, and a weak domestic economy.
To be honest, there's not much suspense in the City this time. The BoE is widely expected to cut interest rates for the fourth time in the current cycle, at lunchtime.
Bank Rate is currently 4.5%, and many traders suspect the only question is whether the monetary policy committee restricts itself to a quarter-point cut, to 4.25%, or gets the big bazooka out and votes for a half-point cut, to 4%.
This morning, a quarter-point cut is much the more likely – it's priced at a 95% chance in the money markets. A half-point cut would be a surprise, as it's seen as just a 5% possibility.
James Mashiter, fixed income portfolio manager at asset manager SEI, says:
'We think the Bank of England will cut the base rate by 25 basis points, in line with market expectations.
However, with a whiff of stagflation in the air, the BoE is in a difficult position as it attempts to stimulate growth while keeping inflation expectations anchored and the bond vigilantes at bay.'
The Bank will be concerned that Donald Trump's trade war will hurt the global economy, with a knock-on impact on UK growth (governor Andrew Bailey often mentions how Britain is an open economy).
But they'll also have to assess the impact on inflation – if manufacturers from China, say, redirect products initially destined for the US into the UK market, at bargain prices.
Last month, the Bank warned that Donald Trump's sweeping tariffs have put global growth at risk.
Ranjiv Mann, senior portfolio manager at Allianz Global Investors, predicts a quarter-point cut, given the downside risks for the global growth outlook, and told clients: UK economic activity remains weak and trade policy uncertainty has risen sharply in recent months, weighing on UK consumer and business sentiment.
The Bank has been taking a cautious policy approach since it last cut rates in February given that CPI inflation remains above its target. However, business sentiment is now beginning to be weighed down by trade policy uncertainty, placing renewed downside risks for the UK economic outlook.
Short term interest rate markets are pricing at least a further three rate cuts in 2025; if the risks of a global trade war intensifies over the coming months, markets may well bring forward UK rate cut expectations.
Last night, the US Federal Reserve left interest rates on hold, and warned that Donald Trump's tariffs were likely to raise prices, weaken growth and increase unemployment if maintained.
One housekeeping note – today's decision, and the Bank's latest economic forecasts, will be delayed by two minutes to honour the silence to mark the 80th anniversary of VE Day. So it'll be announced at 12.02pm, rather than noon The agenda 7am BST: Halifax UK house price index for April
12.02pm BST: Bank of England interest rate decision
12.30pm BST: Bank of England press conference Share Show key events only Please turn on JavaScript to use this feature
Donald Trump's 'major trade deal' announcement later today (3pm UK time) will be closely watched, for at least two reasons.
As well as the identity of the country involved, investors will want to know what the framework of the deal looks like – as a sign for how other negotiations may play out.
Jim Reid, market strategist at Deutsche Bank, explains:
In a Trump 2.0 world it often seems like the news flow doesn't really get going until after the US market closes and today is another example of that as overnight Mr Trump has teased that a 'major trade deal' will be announced today at 10am DC time (15:00 BST). This must be the very big announcement he flagged on Tuesday.
The media are all lining up behind the deal being with the UK. Given that full trade deals take years to negotiate, this will likely be a framework and it will be interesting to see whether the 10% baseline tariff stays as that will provide an important template for negotiations with other countries and a good guide to the long-term tariff strategy of the US. Share
Hopes that the US and UK have agreed the framework of a trade agreement have given the pound a small lift, and could push shares higher in London today too.
Sterling jumped as much as half a cent in early trading, to as high as $1.3356, before slipping back to around $1.332.
The move follows reports that Donald Trump is planning to announce a new trade pact with the UK later today.
Trump has caused a stir, by posting on his Truth Social site that a major trade deal would be announced today, saying:
'Big news conference tomorrow morning at 10:00am, the Oval Office, concerning a MAJOR TRADE DEAL WITH REPRESENTATIVES OF A BIG, AND HIGHLY RESPECTED, COUNTRY. THE FIRST OF MANY!!!'
Big News Conference tomorrow morning at 10:00 A.M., The Oval Office, concerning a MAJOR TRADE DEAL WITH REPRESENTATIVES OF A BIG, AND HIGHLY RESPECTED, COUNTRY. THE FIRST OF MANY!!!
From Donald Trump Truth Social 05/07/25 08:56 PM — Donald J. Trump Posts From His Truth Social (@TrumpDailyPosts) May 8, 2025
Britain's FTSE 100 share index is also expected to rise when trading begins at 8am, as traders anticipate that the UK could be the 'big and highly respected' country involved.
A team of senior British trade negotiators landed in Washington on Wednesday as talks over a deal between the two countries gathered pace.
Officials from the UK business and trade department were attempting to get an agreement signed before a planned UK-EU summit on 19 May.
More here: Share
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
The Bank of England is in the spotlight today, as policymakers at the UK central bank set interest rates in the face of a global trade war, and a weak domestic economy.
To be honest, there's not much suspense in the City this time. The BoE is widely expected to cut interest rates for the fourth time in the current cycle, at lunchtime.
Bank Rate is currently 4.5%, and many traders suspect the only question is whether the monetary policy committee restricts itself to a quarter-point cut, to 4.25%, or gets the big bazooka out and votes for a half-point cut, to 4%.
This morning, a quarter-point cut is much the more likely – it's priced at a 95% chance in the money markets. A half-point cut would be a surprise, as it's seen as just a 5% possibility.
James Mashiter, fixed income portfolio manager at asset manager SEI, says:
'We think the Bank of England will cut the base rate by 25 basis points, in line with market expectations.
However, with a whiff of stagflation in the air, the BoE is in a difficult position as it attempts to stimulate growth while keeping inflation expectations anchored and the bond vigilantes at bay.'
The Bank will be concerned that Donald Trump's trade war will hurt the global economy, with a knock-on impact on UK growth (governor Andrew Bailey often mentions how Britain is an open economy).
But they'll also have to assess the impact on inflation – if manufacturers from China, say, redirect products initially destined for the US into the UK market, at bargain prices.
Last month, the Bank warned that Donald Trump's sweeping tariffs have put global growth at risk.
Ranjiv Mann, senior portfolio manager at Allianz Global Investors, predicts a quarter-point cut, given the downside risks for the global growth outlook, and told clients: UK economic activity remains weak and trade policy uncertainty has risen sharply in recent months, weighing on UK consumer and business sentiment.
The Bank has been taking a cautious policy approach since it last cut rates in February given that CPI inflation remains above its target. However, business sentiment is now beginning to be weighed down by trade policy uncertainty, placing renewed downside risks for the UK economic outlook.
Short term interest rate markets are pricing at least a further three rate cuts in 2025; if the risks of a global trade war intensifies over the coming months, markets may well bring forward UK rate cut expectations.
Last night, the US Federal Reserve left interest rates on hold, and warned that Donald Trump's tariffs were likely to raise prices, weaken growth and increase unemployment if maintained.
One housekeeping note – today's decision, and the Bank's latest economic forecasts, will be delayed by two minutes to honour the silence to mark the 80th anniversary of VE Day. So it'll be announced at 12.02pm, rather than noon The agenda 7am BST: Halifax UK house price index for April
12.02pm BST: Bank of England interest rate decision
12.30pm BST: Bank of England press conference Share