Despite Donald Trump’s recent U.S. election victory and the tax-raising Budget, the Bank of England has cut interest rates for the second time this year.
Policymakers voted to lower the Bank Rate from 5% to 4.75%, following an initial cut in August—its first in four years—before holding rates steady in September.
This latest cut comes as inflation dropped to 1.7% in September, marking the lowest since April 2021.
However, Trump’s election as the next U.S. president raises concerns about potential tariffs affecting UK-US trade, as the Republican has pledged to increase levies on imports.
Bank of England Governor Andrew Bailey stated that policymakers must be cautious about lowering borrowing costs “too quickly or by too much,” as the Bank voted 8-1 to reduce the Bank Rate to 4.75%.
Mr. Bailey explained, “Inflation is slightly below our 2% target, allowing us to cut interest rates again today.
“We need to ensure inflation remains near the target, so we can’t reduce rates too rapidly or by too large a margin.
“However, if the economy performs as expected, it’s likely that interest rates will continue to decrease gradually from this point.”
Deutsche Bank analyst Jim Reid noted that “higher tariffs will add to inflationary pressures.”
Inflation was already anticipated to rise in the coming months after Chancellor Rachel Reeves unveiled nearly £70 billion in additional annual spending in the Budget, funded through tax increases and additional borrowing.
The Office for Budget Responsibility projected that inflation will average 2.5% this year and 2.6% next year before easing, assuming “the Bank of England takes action” to help bring it down to the target rate.
