8 May 2025
If you are covering the Bank of England’s decision to cut interest rates to 4.25%, please find below a comment from Lindsay James, investment strategist at Quilter:
“The Bank of England has opted to cut interest rates to 4.25%, with seven members of the MPC voting to lower rates in a sign of strong agreement around the threat to growth imposed on the UK economy by Trump’s tariffs. Indeed, two members wanted to go further and bring rates down to 4%, suggesting more drastic action is being considered as economic growth is forecasted to have stalled, although it should be noted two members opted to leave rates unchanged so the unanimity expected by the market is not there just yet.
“With the cut having been widely anticipated by markets, investors will focus now on the likelihood of a successive cut in June, seen to be in the balance in the run up to today’s meeting. Investors are betting on three further rate cuts this year as rising risks to growth look likely to supersede inflationary threats in the coming months.
“Although we are yet to see the impact on inflation from April’s hike to employer’s National Insurance contributions and national minimum wage, it is expected that much of this will be passed on to consumers through one-off price rises. Offsetting that however is the impact of falling energy prices, with the Energy Price Cap predicted to fall by around 9% in July, although we will see a rise in inflation for the third quarter due to prior energy price increases. Nevertheless, there is also the possibility that certain Chinese goods previously destined for the US may now find their way to the UK market, pulling down goods inflation in the process. The government desperately wants consumer confidence to return and will be hoping this rate cut can help turn the tide against the pessimistic economic outlook, especially if a lid can be kept on inflation.
“However, the UK and global economy remains in a period of hiatus as we await the outcome of a 90 day pause in reciprocal tariffs. With the UK and US expected to announce some sort of trade agreement, any retaliation from UK is now firmly off the cards. This removes one risk for the MPC in terms of the effect that would have on prices, however with the universal 10% tariff likely to remain in place for the UK, it could also be a case of damage limitation. With further threats on the expansion of tariffs to sectors such as the film industry, it is a reminder that Trump will happily shift the goalposts and make any kind of forward planning for the UK government or businesses next to impossible.”
