Bank of England Lowers Rates to 4.25% as Trump Tariffs Obscure UK Growth Prospects

The Bank of England (BoE) has lowered its base rate by 0.25 percentage points to 4.25%, acting against rising fears new U.S. tariffs will sap global economic expansion and slow down the UK's recovery. The move, a 5-4 majority in the Monetary Policy Committee, signals stark differences within policymakers: two voted for an even half-point reduction, with two preferring a standstill on rates.

This is the BoE's first rate decision since U.S. President Donald Trump leveled sweeping tariffs in April, triggering market instability and leading the IMF to lower UK and global growth projections. The BoE puts the tariffs at potentially reducing the UK economy by 0.3% over three years, most of which would be a result of the generalized wider world slowdown instead of explicitly tariffs on British products.

Although the rate cut provides relief to businesses and borrowers, the central bank cautioned of continuing uncertainty. Governor Andrew Bailey underscored a "cautious and gradual" path towards additional easing as he cited the volatility of the global economy and uncertainty regarding the impact of tariffs on UK inflation. The BoE now forecasts inflation to fall back to its 2% target in early 2027, nine months sooner than its earlier projections, as increased energy and water bills spur prices briefly.

Markets now expect as many as three additional rate cuts this year, but the BoE emphasized that it is not on a predetermined course, promising to be flexible as trade tensions and economic threats change.

Source: Reuters, Bloomberg, CNBC