In This Article:
Bank of England (BoE) governor Andrew Bailey has signaled that the Bank is likely to cut interest rates next month, as the central bank weighs the risks posed by a potential escalation in global trade tensions.
Speaking at an event hosted by the Institute of International Finance in Washington D.C., the BoE governor said the central bank was “working through” the economic implications of US president Donald Trump’s tariff policies ahead of its upcoming Monetary Policy Committee meeting on 8 May.
"We're currently working through that because we've got an interest rate decision coming in two weeks' time," Bailey said, in comments that reinforced growing investor expectations of a rate cut.
Markets on Wednesday priced in a 100% probability that the BoE will lower rates by 25 basis points, amid mounting concerns that a breakdown in global trade could weigh heavily on the UK’s already sluggish growth prospects.
While the UK is not directly in the line of fire from the most severe US tariffs, Bailey warned that the ripple effects of trade disruption would be felt globally, particularly by open economies such as Britain.
“It’s not just the relationship between the US and the UK, it’s the relationship between the US, the UK and the rest of the world that matters so because the UK is such an open economy,” he said. “We have to take very seriously the risk to growth. I’ve said a number of times, fragmenting the world economy will be bad for growth.”
The warning comes amid renewed concerns over global economic momentum, as the International Monetary Fund slashed its 2025 global growth forecast by 0.5 percentage points this week. The UK’s growth outlook was downgraded to 1.1%, down from a 1.6% projection in January, citing the heightened uncertainty linked to US protectionist measures.
Bailey also pointed to persistent structural weaknesses in the UK economy, noting that “weak productivity growth” has continued to constrain output since the financial crisis.
Chancellor Rachel Reeves, also in Washington for IMF meetings, expressed cautious optimism that the UK could secure a bilateral agreement with Washington to mitigate the trade fallout. “What we hear from the US administration is that they are keen to do a deal with the UK,” Reeves said.
Read more: Bank of England poised to cut interest rates in May
The tariff announcement on 2 April triggered a sharp sell-off in global equities, prompting the US administration to delay the implementation of several proposed measures by 90 days — a move analysts said reflected concern over market instability.