Bank of England poised to cut rates as fears grow over impact of Trump tariffs

Richard Partington Senior economics correspondent

Mon, May 5, 2025, 4:00 AM 4 min read

The Bank of England is poised to cut interest rates on Thursday amid growing concerns over the hit to UK jobs and growth from Donald Trump’s increasingly erratic global trade war.

In the Bank’s first intervention since the US president’s “liberation day” tariff policy announcement sent shock waves through the world economy, Threadneedle Street is expected to reduce its key base rate from the current level of 4.5%.

Financial markets suggest an almost 100% chance of a quarter-point reduction. However, some economists – including a former Bank deputy governor – have argued that a bigger half-point cut is needed to help businesses and households in the face of the dramatically worsening global outlook.

Economists have warned that Trump’s trade battles will lead to a significant slowdown in trade, and come with a cost for US consumers by pushing up prices and raising the chances of a recession.

Business and consumer confidence levels have fallen sharply in other countries, including in Britain, over fears that his tariff policies and unpredictable approach will torpedo economic activity around the world.

Related: Good news on UK inflation may be short-lived amid trade war and rising household bills

“The near-term UK growth outlook already looked challenging – recent US tariff announcements have added to the headwinds,” said Edward Allenby, a UK economist at the consultancy Oxford Economics.

“[A] May cut is a done deal, and the MPC could signal a less cautious approach [to cutting rates] ahead.”

In a crunch week as central banks on both sides of the Atlantic respond to the unfolding economic shock, the financial markets expect the US Federal Reserve to disregard fierce criticism from Trump and keep interest rates unchanged on Wednesday.

Last month, Trump called the Fed chair, Jerome Powell, a “major loser” whose “termination cannot come fast enough”, before rowing back on his attacks on the central bank’s independence in the face of a bond market meltdown.

While there are concerns that the president’s tariffs could stoke inflation – which could push central banks to keep rates at elevated levels – economists say the border taxes may pull down inflation in other countries.

This is because tariffs could lead to exports destined for the US market being rerouted elsewhere, leading to a glut of goods in UK and EU markets, while the hit to economic activity will also sap inflationary pressures. Already there are signs of falling trade volumes between the US and its largest partners, including figures showing a sharp decline in container shipping.