Bank of England Cuts Interest Rate as Global Trade Risks Grow

Updated on 9 May 2025

In response to rising global economic uncertainty and persistent trade pressures, the Bank of England has cut its benchmark interest rate by 0.25 percentage points to 4.25%. The move, announced at the conclusion of its May monetary policy meeting, marks the central bank’s fourth consecutive rate cut since August 2024 and signals an ongoing effort to shield the U.K. economy from external shocks.

A Defensive Cut Amid Global Trade Tensions

The rate decision comes against the backdrop of escalating tariff conflicts and slowing growth across major economies. With the U.S. imposing sweeping import tariffs and global trade volumes weakening, the Bank of England has chosen to act preemptively in support of domestic demand and credit conditions.

Governor Andrew Bailey emphasized that while U.K. inflation has moderated in recent months, the broader risks to economic momentum—particularly from global trade frictions—justify further accommodation. He noted that the central bank remains focused on “navigating a delicate global environment with flexibility and resolve.”

A Divided Committee Reflects Uncertainty

The Monetary Policy Committee (MPC) was not unanimous in its decision. While a majority voted for the 25-basis-point cut, a faction of the committee expressed concern that cumulative rate reductions may not be sufficient if trade disruptions intensify further. Others worried that inflation could reignite if energy and food prices spike again in the coming quarters.

This division underscores the uncertain outlook facing policymakers—not only in the U.K., but across the global central banking community—as they balance inflation control with the need to support growth.

Market Reaction: Modest Relief for Pound and Equities

Markets responded cautiously to the announcement. The British pound edged lower against the U.S. dollar following the decision, reflecting expectations of continued monetary easing. Meanwhile, the FTSE 100 posted modest gains as rate-sensitive sectors like real estate and consumer discretionary saw improved sentiment.

U.K. government bond yields also declined, indicating growing confidence that the Bank of England could ease policy further if macroeconomic conditions deteriorate.

Economic Outlook: More Cuts Possible

The Bank’s rate cut adds to a growing chorus of global central banks adopting a more dovish stance in the face of rising geopolitical and trade tensions. Analysts now expect that the U.K. base rate could fall as low as 3.75% by year-end, especially if global growth fails to recover or if U.S. tariffs begin to significantly impact European export demand.

While the central bank continues to monitor incoming data, the tone of the post-meeting statement suggests that further easing remains firmly on the table.