The Bank of England takes centre stage today as policymakers prepare to set interest rates against a backdrop of global trade tensions and a sluggish UK economy.
Market watchers aren’t expecting surprises this time. The central bank is widely predicted to cut interest rates for the fourth time in the current cycle, with a decision due around lunchtime.
The Bank Rate currently stands at 4.5%, and traders largely believe the only question is whether the Monetary Policy Committee (MPC) opts for a modest quarter-point cut to 4.25%, or takes a bolder step with a half-point cut to 4%.
As of this morning, markets are pricing in a 95% probability of a 25 basis point cut, with only a 5% chance of a larger move.
James Mashiter, fixed income portfolio manager at SEI, commented:
“We think the Bank of England will cut the base rate by 25 basis points, in line with market expectations.
However, with a whiff of stagflation in the air, the BoE is in a difficult position as it attempts to stimulate growth while keeping inflation expectations anchored and the bond vigilantes at bay.”
The Bank remains wary of the impact of Donald Trump’s global tariff measures, which have already clouded the outlook for global growth. Governor Andrew Bailey, who often emphasizes the UK’s exposure as an open economy, is likely to weigh these risks carefully.
At the same time, policymakers must consider how tariffs could affect inflation. For example, if Chinese manufacturers divert goods originally destined for the U.S. into the UK market at reduced prices, this could exert downward pressure on inflation.
Just last month, the Bank warned that Trump’s sweeping trade measures were endangering global economic stability — a concern likely to influence today’s rate decision.
