The Bank of England’s decision to lower the base interest rate by 0.25% to 4.25%, highlighting the three-way divide between policymakers due to changes in global trade.
The bank’s interest rate setting Monetary Policy Committee voted 5-2-2 for lowering interest rates, Swati Dhingra and Alan Taylor urgently reduced the 0.5% reduction, while Catherine L Mann and Huw Pill were happy with the status quo.
The UK and the U.S. will announce that it is expected to be a limited trade deal later today, with auto tariffs and digital taxes expected.
But May’s monetary policy report clearly demonstrates the uneasy impact of US President Trump’s April tariffs on world trade, which taxes imports at least 10% on about 75 countries.
It said: “The uncertainty surrounding global trade policy has intensified since the U.S. imposes tariffs and measures taken by some of its trading partners.
“The outlook for global growth has weakened due to this uncertainty and new tariff announcements, although the negative impact on UK growth and inflation is small.”
However, the bank puts the UK economy on a 1% forecast this year, marking an escalation of growth of 0.75% forecast in its February report.
This is mainly due to higher-than-expected growth in the first three months of 2025.
But the 2026 forecast has dropped to 1.25% from the previous 1.5%.
The commission expects energy prices in the third quarter to “still likely” increase inflation to 3.5% before “returning thereafter.”
However, the interest rate setting people left some clues about the direction of their travel this year.
“Monetary policy is not on a fixed road. The Commission will be sensitive to unpredictability in the economic environment and will continue to update its assessment of risks.”
“The consequences of U.S. President Donald Trump’s policy on tariffs have caused huge instability, leading economists to predict a global economic slowdown,” said chief business official Ryan Etchells.
Mark Harris, CEO of SPF Private Clients, noted: “The bank missed a bold opportunity to cut it in half to 4%. This will send a strong message that will help boost the housing market and the broader economy, especially with the stamp duty rate now over.
“The swap rate continues on the downward path, with lenders lowering mortgage rates in recent weeks and now more than 4% of transactions available. The market has lowered this latest tax rate, largely expected by the market and has been included in the pricing.
“However, the continued decline in swaps will allow lenders to price more sharply in the future, thus further focusing on borrowers’ affordability.”
Matt Smith, a mortgage expert at RightMove, added: “The highly anticipated second tax cut in the year has arrived and as some lenders spend time delivering expected bank-reduced gains, I think we may see further reductions now in the coming days and weeks.
“A new round of mortgage rates may boost buyers’ demand as the spring sales season comes to an end this year.”
Sanjay Raja, chief British economist at Deutsche Bank, pointed out: “For all hype, Monetary Policy Committee Basically, back to a month or two ago.
“It’s a more divided Monetary Policy Committee. Although policy direction is still declining, MPC continues to delay footing in speed and scale. ”
“There is no doubt that President Trump’s trade war has forced central banks to act urgently, and therefore has concerns about inflation and confidence in businesses and consumers, especially in response to higher taxes and costs,” said John Phillips, CEO of Just Mortgages and Spicerhaart.
“Either way, the base rate movement is absolutely welcome and will surely help stimulate demand.”
Five members – Andrew Bailey, Sarah Breeden, Megan Greene, Clare Lombardelli and Dave Ramsden
Two members – Swati Dhingra and Alan Taylor voted for 0.5% cut
Two members – Catherine L Mann and Huw Pill vote to decide on the unchanged rate
