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The Bank of England has cut interest rates for the second time this year to 4.25pc from 4.5pc as it warned that Donald Trump’s trade war was weighing on the economy.
Ahead of an expected announcement of a UK-US trade deal, the Bank also cut its forecasts for UK growth in 2026.
While Governor Andrew Bailey stressed the Bank will continue to take a “gradual and careful” approach to future rate cuts, Threadneedle Street signalled that an extended period of uncertainty over global trade was likely to pave the way for lower borrowing costs to boost the economy.
The Bank cut its forecasts for UK growth next year to 1.25pc from 1.5pc as it warned that tariffs and uncertainty about the global economy would knock 0.3pc off UK GDP over the next three years as well as lower inflation.
Markets are currently pricing in two more rate cuts this year.
However, minutes of the Monetary Policy Committee’s (MPC) latest meeting also reveal a growing split among policymakers on interest rates.
Two of the MPC’s members voted for a bigger rate cut to 4pc, while two others, including chief economist Huw Pill, called for rates to remain unchanged while inflation remains above the Bank’s 2pc target.
Commenting on the decision, Mr Bailey said: “Inflationary pressures have continued to ease so we’ve been able to cut rates again today.
“The past few weeks have shown how unpredictable the global economy can be. That’s why we need to stick to a gradual and careful approach to further rate cuts. Ensuring low and stable inflation is our top priority.”
The Bank’s latest forecasts are predicated on Donald Trump’s 90 day pause on his “liberation day” tariffs being made permanent.
The statement was drawn up before Mr Trump said a US-UK deal would be announced today and, speaking at a press conference after the interest rate announcement, Bailey said a deal would be “excellent”.
He said Britain was a “very open economy” and as a result he hoped any deal announced today would be the first of many, as the UK is “effected by the way tariffs effect other economies”.
Read the latest updates below.
Andrew Bailey, the Governor of the Bank of England, has told Bloomberg TV that he is “open minded” about future interest rate changes this year.
He said: “I suppose the only thing we can say in confidence is, in the world we’re in at the moment, is that a lot’s going to happen in the next, whatever it is, six weeks or so.
“So I have to be honest with you. Again, you know, I’m very open minded about every meeting ... every meeting is live for us. That’s our philosophy. It’s not a shifting philosophy. That’s a permanent philosophy. So I’m very open minded about it, frankly.”
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