Interest rates cut again as Bank of England responds to the impact of Trump’s tariffs

Interest rates have been cut by 0.25% to 4.25%, the fourth cut in the past year, as the Bank of England responds to increased economic headwinds and the impact of America’s trade war policies.

The Bank’s Monetary Policy Committee (MPC) started to reduce rates last August and followed up with further quarter-point cuts in November and February.

Today’s cut was expected, although the split MPC vote was not. The committee had five members support a 0.25% reduction, while two wanted a 0.5% cut but two voted for no change.

Economists have forecast further rate cuts this year, with consensus predictions pointing to it falling to around 3.75% by the end of 2025.

Inflation is above the Bank’s 2% target and is expected to climb further and peak in the third quarter – and rising inflation is more commonly a ssociated with rising interest rates – but economic clouds have persuaded the MPC to act.

In explaining today’s decision, the MPC said that “monetary policy is not on a pre-set path”, but based on the medium-term outlook for inflation “a gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate”.

Challenges caused by sluggish growth in major Western economies and President Trump’s tariff policies have raised fears of a global recession and increased market uncertainty.

More positively, the UK and the US are expected to announce a trade deal later today. While the agreement is of immediate symbolic importance to the Government, and follows on from the UK-India deal earlier this week, the economic significance will take longer to be assessed.

The MPC added: “Uncertainty surrounding global trade policies has intensified since the imposition of tariffs by the United States and the measures taken in response by some of its trading partners. There has subsequently been volatility in financial markets, and market-implied policy rates have moved lower.

“Prospects for global growth have weakened as a result of this uncertainty and new tariff announcements, although the negative impacts on UK growth and inflation are likely to be smaller.”

Unusually, the Bank of England’s announcement was made at 12.02pm, delayed to accommodate the two-minute silence to mark VE Day.