As US President Donald Trump’s tariffs weaken the global economy’s prognosis, the Bank of England is anticipated to drop interest rates by a quarter point on May 8. However, some analysts believe the BoE may soon need to accelerate its gradual rate-cutting strategy.
Speaking in Washington last week following the International Monetary Fund’s downgrading of the UK and global growth expectations, BoE Governor Andrew Bailey stated that he was taking the dangers presented by Trump’s tariffs “very seriously.
While US GDP has declined for the first time in three years, a measure of private-sector activity in the United Kingdom plummeted in April to its lowest level since the chaos produced by former Prime Minister Liz Truss’ budget proposals in late 2022. Due to inflation pressures, particularly robust wage growth, the BoE’s Monetary Policy Committee has only lowered rates three times since August 2024, adopting what it refers to as a “gradual and careful” approach. Rob Wood, chief UK economist at consulting firm Pantheon Macroeconomics, stated that this ought to change now.
The MPC will conclude that the economy was performing well before tariffs and most likely only required very small cutbacks. However, Wood anticipated that Donald Trump’s tariff mania would hinder GDP, decrease inflation more quickly, and support earlier and greater interest rate reductions.
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