The Bank of England has reduced interest rates from 4.5% to 4.25%, attributing the decrease in borrowing costs to Donald Trump’s trade war.
Prior to the official confirmation of a trade deal between Britain and the United States, the Bank’s monetary policy committee (MPC) decided to lower borrowing costs in the UK, stating that the economy would be slightly weaker and inflation lower due to increased tariffs.
Although the Bank did not predict a recession as a result of the trade war.
Money latest: What rate cut means for you
Further reductions in interest rates are anticipated in the upcoming months, although there is uncertainty regarding the speed and extent of the MPC’s cuts, as the committee was divided in this recent vote.
Two members of the nine-person MPC opted to lower rates even further today, bringing them down to 4%. However, two other members voted to maintain the rate at 4.5%.
In the end, five members supported the quarter-point reduction, which was enough to sway the decision, with the minutes stating that while «the current impact of the global trade news should not be exaggerated, it was significant enough for those members to deem a reduction in the Bank Rate necessary.»
Nonetheless, the Bank’s analysis indicates that while higher tariffs may dampen global and UK economic growth and contribute to lower inflation, the effects are expected to be relatively minor, with growth decreasing by only 0.3% and inflation by 0.2%.
Governor Andrew Bailey stated: «Inflationary pressures have continued to ease, allowing us to implement rate cuts once again today.
«Recent weeks have demonstrated the unpredictable nature of the global economy. This is why we must proceed with caution and prudence in further rate reductions. Maintaining low and stable inflation remains our primary focus.»
Read more:
Federal Reserve eyes impact from Trump tariffs
During a subsequent news conference, Bailey expressed optimism about the easing of trade tensions with the US, describing the anticipated deal as «fantastic» news, despite not having detailed information about it.
He also mentioned that it would «help alleviate uncertainty».
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Interest rate cut: Three things you need to know
The Bank has revised its forecast for UK economic growth this year from 0.75% to 1%, mainly due to stronger output than expected in the first quarter.
However, the underlying economic growth remains modest at just 0.1% per quarter.
It is projected that inflation will continue to rise in the upcoming months, reaching a peak of 3.5% in the third quarter before gradually declining to slightly below 2% by the end of next year.