Meanwhile, across the Atlantic, the UK’s central bank, the Bank of England, has decided to start lowering interest rates. That makes this the fourth cut since last August of 2022. The central bank has raised the main borrowing cost in Britain to 4.25%. This decision comes in direct response to increasing concerns about global economic health, particularly exacerbated by escalating trade tensions.
Governor Andrew Bailey drew attention to the possible “growth shock” from tariffs set by former U.S. President Donald Trump. The Bank of England’s decision reflects a broader assessment of the economic landscape, where uncertainty surrounding global trade policies has intensified. Escalating tariffs have made all of that uncertainty even worse in global markets. According to the International Monetary Fund (IMF), these tariffs are a major factor behind its recent lowered economic growth projections for dozens of countries, including the United Kingdom.
In justifying the rate cut, the Bank pointed to “substantial progress” made over the past two years in reducing inflation. This specific development has opened the door to a sustained drop in interest rates. Yet the central bank is keeping a wary eye, cautioning that potential challenges lie ahead, particularly from the recently-announced tariffs.
New experimental real-time data from a private sector survey of UK businesses indicates that output shrank in April. This ongoing trend is frighteningly indicative of our country’s overall economic wellbeing. Businesses are left with a dangerous climate of uncertainty. In return, economists and market analysts were virtually unanimous in their expectation of an interest rate cut by the Bank of England.
“Prospects for global growth have weakened as a result of this uncertainty and new tariff announcements, although the negative impacts on UK growth and inflation are likely to be smaller.” – The central bank
The purpose of lowering interest rates is to encourage more spending and investment and offer some financial relief to both businesses and households. That situation continues to develop, and it remains an area that the Bank of England will be watching very closely. They’re particularly interested in international trade policy, and how these changes will affect the UK economy.