Bank of England expected to lower interest rates by 0.25%

Policymakers expect a rate cut as the UK faces economic challenges.

Bank of England set to reduce interest rates amid rising unemployment and Trump’s tariffs

The Bank of England is likely to reduce interest rates to 4% to support the economy amid increasing unemployment and the impact of new tariffs from Donald Trump. City traders suggest there is over an 80% chance of this reduction happening at the upcoming monetary policy committee meeting. This rate cut would mark the fifth since last August and aims to lower mortgage rates and borrowing costs for struggling businesses. Economic indicators show concerning trends, including a 0.1% contraction in May and an increase in the unemployment rate to 4.7%, the highest since June 2021. Additional tariffs imposed by the U.S. are further hurting global trade and growth prospects. The International Monetary Fund warns that the UK economy might only expand by 0.1% in the latter half of the year, with signs pointing to a potential stagflation period ahead.

The anticipated interest rate cut reflects a delicate balancing act for the Bank of England as it navigates rising unemployment and external threats from trade tariffs. While lowering rates could provide short-term relief, economists are concerned about inflation remaining high and possibly escalating. The mixed signals from the labor market suggest deeper issues at play, where job losses could fuel further economic uncertainty. The threat of stagflation looms large, forcing the MPC to reconsider its strategies. If inflation expectations rise, this might limit the effectiveness of further rate cuts.

Highlights

The upcoming MPC meeting may set the tone for the UK's economic policy in the challenging months ahead.