Ahead of an expected trade deal between US and UK, the Bank of England cut rates by 25bps to 4.25% (as expected) this morning.
However, the divided decision surprised markets by showing a more cautious-than-expected approach toward easing monetary policy.
Five members of the BOE’s Monetary Policy Committee voted for a quarter-point cut, while two wanted a larger half-point reduction.
Another two voted to hold rates steady.
The committee held its guidance that easing should continue to be “gradual and careful” in light of volatility in the global economy caused by Trump’s sweeping tariffs.
“Inflationary pressures have continued to ease so we’ve been able to cut rates again today,” Governor Andrew Bailey said in a statement accompanying the decision.
“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.”
Today’s guidance may have disappointed market expectations partly because investors had overstated the role tariffs would play in the bank’s decision-making, economists at ING suspect.
They wrote:
“While the added uncertainty and weaker outlook for global growth will become a headwind, the reality is that the direct impact of US tariffs so far looks very limited — particularly if Britain is granted sizable carveouts from US President Donald Trump’s sectoral tariffs later today.”
The pound is stronger following the BoE, but has been choppy since the initial FT headlines and later confirmation that a trade deal is imminent:
Gilt yields remain up across the curve, with the increases skewed towards the short end given its sensitivity to monetary policy.
The Fed’s lack of rate-cut (following China’s cut and now BoE’s cut), prompted a further outburst from President Trump
“Too Late” Jerome Powell is a FOOL, who doesn’t have a clue. Other than that, I like him very much! Oil and Energy way down, almost all costs (groceries and “eggs”) down, virtually NO INFLATION, Tariff Money Pouring Into the U.S. — THE EXACT OPPOSITE OF “TOO LATE!” ENJOY!
Notably, amid the panic in the US over tariffs and (hyped) inflation, BoE policymakers had worried that tariffs could push prices higher but are now more confident that those risks will be avoided.
The BOE now estimates tariffs will lower U.K. inflation by 0.2 percentage points in two years.
Finally, traders are still pricing in another two rate cuts from the BoE this year.
If that comes to pass, that would result in 100 basis points of easing in 2025 – pretty much bang in line with the guidance from Governor Bailey late last year.
credittrader
Thu, 05/08/2025 – 08:32
