Bank of England could cut interest rates four times as Donald Trump's tariffs bite
Bank of England could cut interest rates four times as Donald Trump's tariffs bite
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The Bank of England could cut interest rates more aggressively as Donald Trump’s tariff policies fuel fears of a global downturn. Rate-setters are all but certain to announce a cut from 4.75 per cent to 4.5 per cent at the next Monetary Policy Committee (MPC) meeting on Thursday. And traders have stepped up their bets that there could be as many as four cuts this year. Trump, meanwhile, imposed tariffs of 25 per cent on imports from Mexico and Canada, and 10 per cent on China. The tariffs on Mexico were later delayed for a month.
The President warned that the European Union could be next in the firing line but hinted Britain might be spared, saying: ‘I think that one can be worked out.’. The tariffs are expected to feed through to higher US inflation, reducing the chances of a rate cut by the Federal Reserve and strengthening the dollar. Tariff threat: Bank of England rate-setters are all but certain to announce a cut from 4.75% to 4.5% at the next Monetary Policy Committee meeting on Thursday.
They threaten to hit economic growth worldwide at a time when European economies are already struggling. Monthly purchasing managers’ index (PMI) figures yesterday showed manufacturing in decline in Britain, Germany and France. Sterling plunged by as much as a cent-and-a-half against the dollar to close to $1.22 in early trading before recovering after the Mexican reprieve. But hopes that Brexit might mean Britain is spared the punishing tariffs hanging over Europe helped the pound notch up its eighth day in a row of gains versus the single currency – climbing to more than €1.20 for the first time in nearly a month.
Against the dollar, the euro fell to as low as $1.02, fuelling predictions it could be heading towards parity with the greenback. Government borrowing costs also fell across Europe as markets anticipated more rate cuts. Yields on UK ten-year bonds fell below 4.5 per cent to their lowest level since mid-December. Hetal Mehta, of wealth manager St James’s Place, said the US tariff moves would ‘inevitably raise questions’ about how central banks in the UK and Europe might respond ‘should they also be subject to such protectionist measures’.
‘Any further weakness in the euro area economy will likely spillover to the UK,’ Mehta said. ‘For some MPC members, the case for a pre-emptive cut may be enhanced.’. Ranjiv Mann, senior fixed income portfolio manager at asset manager AllianzGI, said: ‘We believe that the Bank will cut interest rates more aggressively in 2025 than current market pricing, especially if the risks grow of a transatlantic trade war.’.
