Bank of England interest rate decision
Newsflash: The Bank of England has cut UK interest rates, by a quarter of one percentage point.
The move, which matches City expectations, lowers Bank rate to 4.25%, its lowest level in around two years.
More to follow…
Key events
Bailey: Excellent news that UK is leading the way on US trade deal
Bank of England governor Andrew Bailey has hailed the news that Britain and the United States are expected to announce a trade agreement in a couple of hours.
He tells journalists at today’s press conference that the Bank has been following the issue very closely.
Bailey says he hasn’t been briefed about the situation, and doesn’t know the content of the deal.
But he says:
We do now have news that suggests there will be an announcement, and we welcome that news.
I very much welcome it, and I think it’s very well done to those involved.
Bailey explains that the deal will help to reduce uncertainty within the economy.
But, he cautions, as the UK is a very open economy, so will be affected by the way tariffs affect other economies.
Bailey says:
I hope that the UK agreement, if it is indeed announced this afternoon, will be the first of many.
That will be good news all around, including for the UK economy.
It is “excellent that the UK is leading the way”, he concludes, repeating his congratulation to those involved on both sides.
Reminder: Donald Trump has already announced a trade deal between the UK and the US, saying the agreement is a “full and comprehensive one”.
Bailey: Interest rates are not on autopilot
Bank of England governor Andrew Bailey is speaking to journalists in London now, to explain why the BoE lowered interest rates to 4.25%.
Bailey starts by declaring:
The disinflation process in the UK economy has continued.
He explains that at 2.6% in March, inflation was lower than expected, meaning the Bank could take “another step” to making monetary policy less restrictive.
Bailey says the past few weeks have demonstrated that the global economic environment is uncertain.
Interest rates are not on autopilot, they cannot be.
Instead, he says, the Bank’s monetary policy committee will set borrowing costs based on the evolving economic circumstances and the outlook for inflation.
Bank lowers inflation forecast, a little
The Bank of England has trimmed its forecast for inflation this year.
The BoE now predicts inflation will peak at 3.5% in the third quarter of this year, having previously forecast it would hit 3.7% in Q3.
That’s good news, on balance, for households, but it still means inflation is going to rise further above the Bank’s 2% target – having been 2.6% in March.
The Bank of England has drawn up two scenarios for how the UK economy could develop in the face of global uncertainty, due to the US trade war.
In the first scenario, UK demand is weaker and domestic inflationary pressures fade more quickly than in the Bank’s baseline projections, driven by elevated uncertainty.
The BoE says:
In the first scenario, greater or longer-lasting weakness in demand relative to supply, in part reflecting uncertainties globally and domestically, might further mitigate inflationary pressures over the medium term.
Underlying GDP growth had been weak, and global trade policy uncertainty had risen sharply, which was likely to weigh on household consumption and business investment. It was possible in this environment of uncertainty that precautionary saving could rise and consumption could weaken.
But in a second scenario considered by the Bank, inflation remains persistent for longer, due to wages and prices rising faster than expected.
The BoE explains:
In the second scenario, greater persistence in domestic wage- and price-setting, both from additional second-round effects related to the near-term increase in headline CPI inflation and from weaker aggregate supply, might exacerbate the persistence of inflation.
Underlying services consumer price inflation and indicators of wage growth had been moderating, but remained at elevated levels. There was evidence that the near-term inflation expectations of firms and households had recently become more reactive to changes in current CPI inflation than they had been pre-Covid. In addition, there were upside risks to inflation stemming from softer growth in potential productivity.
Prospects for global growth have weakened due to trade uncertainty
Announcing today’s decision to cut interest rates, the Bank of England warns that the trade war triggered by Donald Trump risks damaging global growth.
The BoE says:
Uncertainty surrounding global trade policies has intensified since the imposition of tariffs by the United States and the measures taken in response by some of its trading partners. There has subsequently been volatility in financial markets, and market-implied policy rates have moved lower.
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.
Bank of England policymakers split 5-2-2 over rate cut
The nine members of the Bank’s monetary policy committee was split three ways over today’s decision.
Five policymakers – governor Andrew Bailey, plus Sarah Breeden, Megan Greene, Clare Lombardelli and Dave Ramsden – voted for a quarter-point reduction.
But two policymakers – Swati Dhingra and Alan Taylor – voted for a half-point cut.
The minutes of the meeting explains that they favoured “a less restrictive policy path”, as:
Two members preferred a 0.5 percentage point reduction in Bank Rate at this meeting based on the outlook. The most significant contributions to the expected pickup in inflation would come from one-off tax and administered prices and past energy shocks.
Incoming wage settlements had so far been close to the Agents’ annual pay survey figure for the end of 2025, and were approaching sustainable rates, while consumer spending remained weak and investment subdued. Along with domestic demand shifts and emerging slack, recent global developments in energy and trade policy pointed to potential downward risks to global growth and world export prices.
And on the other side of the aisle, Catherine Mann and Huw Pill (the Bank’s chief economist) voted to leave interest rates on hold at 4.5%.
The minutes explain:
For these members, the labour market was proving more resilient than expected, business surveys signalled continued inflationary pressures, and household expectations of inflation had firmed. All these indicators pointed to continued inflation persistence owing in part to structural rigidities on the supply side of the economy.
Holding Bank Rate unchanged at this meeting would ensure that monetary policy remained sufficiently restrictive to weigh against stubborn inflationary pressures.
Bank of England interest rate decision
Newsflash: The Bank of England has cut UK interest rates, by a quarter of one percentage point.
The move, which matches City expectations, lowers Bank rate to 4.25%, its lowest level in around two years.
More to follow…
There’s just 20 minutes to wait until we get the Bank of England’s interest rate decision.
Reminder, it’s scheduled for 12.02pm, just after the two-minute silence to mark VE Day.
A quarter-point rate cut is still widely expected, which would bring Bank rate down to 4.25%.
Some City analysts predict an 8-1 split on the monetary policy committee – with eight members voting for a quarter-point cut (from 4.5% to 4.25), and just one voting for a larger, half-point reduction (to 4%).
Matthew Ryan, head of market strategy at global financial services firm Ebury, says:
“The Bank of England is almost certain to cut rates by another 25 basis points on Thursday as it insures against the downside risks to the UK economy posed by President Trump’s tariffs.
“We think that all nine members of the committee will vote for an immediate cut, with an outside chance that one of the doves opts for a 50bp move.
“The MPC will warn that the tariffs will likely weigh on UK growth this year, and officials may also say that the restrictions have disinflationary implications, which would be a clear bearish signal.
“We do not think that the MPC will commit to a firm path for policy at this week’s meeting, particularly as the outlook for the UK economy remains shrouded in uncertainty.
“While heightened global trade uncertainty is negative for growth, we are still yet to see the full impact on inflation and the labour market from the changes to the National Living Wage and employer NIC in April.
“Yet, the BoE may hint that a faster than “gradual” pace of cuts is warranted in light of global trade tensions, which could open the door to another rate reduction as early as the bank’s following meeting in June.”
Trump announces “full and comprehensive” trade deal with the UK
Donald Trump has declared that today should be “a very big and exciting day” for the US and the UK – a clear sign that some form of trade agreement will be announced at 3pm UK time, or 10am at the White House.
Posting on his Truth Social site, the US president says:
The agreement with the United Kingdom is a full and comprehensive one that will cement the relationship between the United States and the United Kingdom for many years to come.
Because of our long time history and allegiance together, it is a great honor to have the United Kingdom as our FIRST announcement. Many other deals, which are in serious stages of negotiation, to follow!
Our Politics Live blog is tracking the latest developments:
Shipping giant Maersk warns global container volumes could drop due to trade war
Shipping group A.P. Moller-Maersk has cut its forecast for demand this year, due to the US trade war.
Maersk warned this morning that trade disruption and geopolitical uncertainty could trigger a drop in global container volumes this year.
Maersk, a barometer of world trade, has revised down its forecast for global container market volume growth to between -1% and 4%. Previously, it had forecast 4% growth this year.
Maersk says:
The outlook for global container demand over the remainder of the year remains highly uncertain, shaped by a rapidly evolving trade policy landscape and increasing recession risks in the US.
Growth is expected to remain positive in the second quarter—particularly if shippers capitalise on the 90-day pause of reciprocal tariffs by frontloading shipments and building inventories. In the latter part of the year, there is, on the one hand, a growing risk that demand could contract, and on the other the possibility that trade rebounds if tariffs are rolled back.
The US dollar has gained ground in the currency markets today, as investors welcome the news that Donald Trump will announce a trade deal (or progress on one, at least) later today.
The greenback has gained against a basket of currencies, nudging the dollar index up by 0.5% today.
The pound has lost its earlier gains, and is now down 0.25% at $1.326.
As well as trade deal optimism, the dollar is also benefitting from last night’s Federal Reserve decision to leave US interest rates on hold yesterday.
Charalampos Pissouros, senior market analyst at XM, says:
The US dollar outperformed all its major peers on Wednesday after the Fed decided to keep interest rates unchanged and sounded less dovish than expected.
The greenback is extending its gains today, especially against the franc and the yen, both considered safe havens, as Trump’s remarks overnight about a potential trade deal further improved risk appetite.
Markets are facing a flurry of major news on interest rates, trade and conflict today, points out Russ Mould, investment director at AJ Bell.
Summing up the situation, he says:
“Investors are watching history unfold before their eyes.
“The Trump administration has already caused turmoil in the business world with the Liberation Day tariff plan. We’re now entering the next phase as countries do deals with the US, and Trump once again changes the rules as he rips up Joe Biden’s playbook.
“At the same time, heightened tensions between India and Pakistan are being watched closely, with investors hoping the situation does not escalate further. All this is happening in a week of important interest rate decisions in the UK and US, meaning investors have a lot of information to digest and that means markets are unlikely to move in a straight line.
“A deal of some kind is expected to be announced today between the UK and the US. It’s hoped that the agreement will lower tariffs imposed on certain UK goods sold into the US, but nothing is certain with Trump until we get the full details.
“A trade deal between the two countries could provide more certainty for UK businesses as to how the future will look, so they can plan accordingly. It might also put the UK in a more favourable light with foreign investors looking to dial down US exposure and wondering where they should reallocate money.”
“Against this backdrop we’ve got the next UK interest rate decision where the Bank of England is widely expected to cut the cost of borrowing. Inflation is expected to go up and consumer and business confidence has been weak of late, creating a backdrop fragile enough for the Bank of England to further ease monetary policy.
One in six UK companies anticipated being hurt by the US trade war, new data shows, highlighting the importance of the deal expected to be announced by Donald Trump later today.
The Office for National Statistics’ latest real-time economic data shows that firms expect weaker demand as they pass on costs to customers.
The ONS says:
In late April, 17% of businesses with 10 or more employees reported that they expect to be impacted by the United States tariffs in the next month; the most reported expected impacts were reduced demand and having to pass on additional costs to customers, both at 7%.
17% of businesses with 10+ employees said in late Apr they expect to be impacted by the United States tariffs in the next month.
The most commonly reported expected impacts were:
· reduced demand (7%)
· passing on additional costs to customers (7%)➡️ https://t.co/XRKwRKAu9h pic.twitter.com/RhvUBGmFVG
— Office for National Statistics (ONS) (@ONS) May 8, 2025
The City are expecting several UK interest rate cuts this year, incuding one just after noon.
The money markets are indicating that Bank rate will be cut by 96 basis points, or almost a whole percentage point, by the end of the year. That means that four quarter-point cuts this year are all-but priced in.
Guillermo Felices, global investment strategist at PGIM Fixed Income, says:
We expect the Bank of England to cut rates by 25 basis points in its May meeting, with any dissenting votes likely to be dovish rather than hawkish. On the domestic front, wage growth and services inflation are running lower than the BoE had projected in February. Add to that the deflationary impact of global trade tensions, lower energy prices, and a stronger Sterling, this meeting seems like the perfect time for the MPC to guide away from their “gradual” approach to cuts.
That being said, April inflation data has the potential to throw a spanner in the works. Increases in water bills, council tax, and other regulated prices, as well as the higher employer NICs contributions, mean there is a good chance UK inflation goes back above 3%.
The market’s focus will therefore be on the messaging. Will the MPC focus on the domestic economy, where the data and news flow could still be interpreted as warranting gradual cuts? Or is the focus on spillovers from global shocks, in which case a gradual approach seems out of place? We think the latter, expecting 3 more cuts after this to end the year at 3.5%.
The front end rates market is almost in line with our view. The market prices in another cut in July and almost two more in H2.
We also have an interest rate decision in Norway.
But as in Sweden, they’ve left rates unchanged at 4.5%, while hinting that borrowing costs will be lowered this year.
Norway’s central bank, Norges Bank, says:
There is uncertainty about future economic developments, but the Committee’s current assessment of the outlook implies that the policy rate will most likely be reduced in the course of 2025.