He Bank of England reduced his main one interest rate In a percentage point, placing it at 4.25%, given the concerns about the possible negative impact on world growth derived from the tariff policies of the administration of US President Donald Trump.
The Bank Governor, Andrew Bailey, said that inflationary pressures continued to decrease, racing the way for the fourth cut of a quarter point since August.
“The last weeks have shown how unpredictable the global economy”he said. “That is why we need to maintain a gradual and careful approach for future feat cuts.”
The decision is the first since President Trump announced tariffs in early April. Although most were paused 90 days after the consequent market agitation, including the base tariff of 10% applied to the assets of the United Kingdom that enter the United States, the panorama for the global economy remains highly uncertain, especially if the commercial war between the United States and China persists.
It is expected that part of that uncertainty, in regard to the British economy, dissipates later on Thursday, when Trump and British prime minister Keir Starmer detail separately a commercial agreement between the United States and the United Kingdom. At least, they are expected to reduce the tariff load.
Bailey welcomed the perspective of an agreement, but said he did not know the exact details.
However, he pointed out that as a “very open economy”, with global connections, the British economy would still be affected by tariffs applied to other economies.
“I say it because I hope that the United Kingdom agreement, if concretized this afternoon, is the first of many,” he said. “This will be good news for everyone, including the economy of the United Kingdom.”
The rate cut occurs despite the expectations that inflation will increase even more above the 2% target of the bank in the coming monthsfrom the current 2.6% as a result of a series of price increases in April, such as domestic energy and water invoices, and companies moving consumer tax increases.
“Although inflation is expected to increase in the short term, we do not expect that to persist,” Bailey said, adding that he will be around the target in two years.
Europe differs from Fed
Unlike the Bank of England and the European Central Bank, which also reduced interest rates last month, The United States Federal Reserve held the rates without changes on Wednesday While those responsible for policy expect to see how Trump’s tariffs affect the US economy before taking any measure.
Most economists think that the Bank of England will continue to reduce interest rates in the coming months, although they admitted that the division into three parts in the vote can complicate their message.
“We still believe that the Bank will cut the rates at least twice this year, but like the Fed Message yesterday, the United Kingdom’s policy responsible will want to see more data on how tariffs and internal tax increases are being assimilated by the economy before acting decisively,” said Luke Bartholomew, deputy director of Economics in the ABERDEEN ASSETS MANAGEMENT
Source: Ambito
