By David Milliken, Suban Abdulla and William Schomberg
LONDON (Reuters) -The Bank of England cut interest rates on Thursday to tackle the expected hit from U.S. President Donald Trump's tariffs but a surprise three-way split among policymakers cooled expectations that it might speed up future moves.
The BoE's rate-setters voted 5-4 in favour of cutting borrowing costs by quarter of a percentage point to 4.25%.
Two Monetary Policy Committee members, Swati Dhingra and Alan Taylor, voted for a bigger half-point cut. Chief Economist Huw Pill and Catherine Mann wanted to keep rates on hold.
No economist polled by Reuters had expected any vote against a rate cut. Sterling rose and two-year borrowing costs jumped as markets saw a much reduced chance of another rate cut in June.
Thursday's decision was the British central bank's first since Trump announced wide-ranging tariffs on April 2, which unleashed temporary market turmoil and prompted the International Monetary Fund to cut its global growth forecasts.
The BoE said it thought tariff increases by the U.S. and other countries would trim British economic growth and push down on inflation, but stressed the outlook was unclear.
"The past few weeks have shown how unpredictable the global economy can be. That's why we need to stick to a gradual and careful approach to further rate cuts," Governor Andrew Bailey said.
The BoE has now cut interest rates by the same amount as the U.S. Federal Reserve since mid-2024 but by less than the European Central Bank due to concerns about high wage growth as well as the risk of persistently above-target inflation.
"The two votes from committee members to hold rates steady sent a more hawkish message to the market," said Matthew Landon, global market strategist at J.P. Morgan Private Bank. "Beneath the hood, we still think that the conditions for cuts remain in place."
NO 'AUTOPILOT' FOR RATES
The BoE said it had no pre-set path for rates. It also said the impact of global trade tensions "should not be overstated".
"Interest rates are not on autopilot. They cannot be," Bailey told a press conference. "Instead, the MPC must continue to respond carefully to the evolving economic circumstances."
For three of the five policymakers who voted for a quarter-point reduction, this week's decision would have been "finely balanced" without the escalation of trade tensions, the minutes showed. Bailey indicated to reporters he was among that group.
Based on the situation as of April 29, the BoE estimated the U.S. tariffs would lower British inflation by 0.2 percentage points in two years' time and reduce the size of the economy by 0.3% after three years.