The Bank of England (BoE) is widely expected to lower interest rates on May 8 in response to growing risks from U.S. trade policy. As President Donald Trump’s tariffs threaten global economic stability, economists are signaling that the BoE may need to abandon its cautious approach and deliver faster rate cuts.
Markets Anticipate a May Rate Cut Amid Slowing Growth
The BoE is expected to reduce interest rates by 25 basis points, bringing them down from 4.5% as weak global indicators mount. A drop in British private-sector activity in April—mirroring the economic disruption during Liz Truss’s tenure—has reinforced expectations of monetary easing.
U.S. output has also contracted for the first time in three years, increasing fears that Trump’s tariff policies could weigh on global demand and trigger a broader downturn.
Gradualism Under Pressure: Economists Call for Faster Action
BoE Governor Andrew Bailey recently expressed concern over the impact of U.S. trade policy following the IMF’s downgrade of global and UK growth. While the Monetary Policy Committee (MPC) has favored a “gradual and careful” stance, Rob Wood of Pantheon Macroeconomics argues that Trump’s tariffs warrant faster rate reductions.
Wood anticipates consecutive cuts in May and June—marking the first back-to-back easing since the COVID-19 crisis. “That’s insurance against Donald Trump’s erratic behavior,” he noted.
Diverging Views Within the BoE as Inflation Persists
Not all MPC members may support speeding up rate cuts. March’s inflation reading came in at 2.6%, still above the BoE’s 2% target. Analysts expect April’s figure to exceed 3%, driven by elevated energy tariffs.
Wage growth, holding near 6%, also complicates the outlook. The BoE believes this level is inconsistent with its inflation goals. However, hawkish MPC member Megan Greene suggested Trump’s tariffs might reduce inflation by flooding the UK with redirected European and Chinese exports.
Future Outlook: Slower Growth, Lower Inflation?
Recent business surveys highlight a drop in UK hiring due to increased taxes and minimum wages—factors that may slow wage inflation. UBS economist Anna Titareva predicts lower consumer price inflation forecasts for 2025 and 2026, with revised projections of 3.2% and 2.1%, respectively.
Though 2025’s growth forecast may hold steady at 0.75%, a downgrade for 2026 appears more likely. The BoE is expected to place greater weight on alternative economic scenarios, following recommendations from former Fed chair Ben Bernanke.
HSBC’s Liz Martins added that the BoE may revise its language around gradualism. “Carefulness cuts both ways,” she said. “There is a risk of doing too little, as well as a risk of doing too much.”
Could the BoE’s Strategy Shift Signal a Global Turning Point?
As major central banks reassess strategies in response to geopolitical and inflationary shocks, the Bank of England’s evolving stance could set a precedent. Will faster cuts stabilize the economy—or expose it to renewed inflation risks?
