British monetary authority poised to lower interest rates amidst attention on American tariffs
🇬🇧 Dropping Interest Rates: The BoE's Smooth Sailing Amid Tariff Turbulence
Get ready to save a bit more on your loans! The Bank of England is all set to slash interest rates to 4.25% in the coming days, as it navigates the fallout of the US tariffs on the UK economy. The move aims to provide cost relief for borrowers while the nation digests the financial impact of the US tariffs.
Most economists predict a reduction of 0.25 percentage points, with many players in the financial market already pricing in a cut. The decrease in inflation, which is a key factor influencing interest rates, becomes evident when we look at the Consumer Prices Index (CPI) inflation, which slowed down to 2.6% in March from 2.8% in February.
Notably, the rate of services inflation, closely monitored by the Bank of England, dipped to 4.7% in March from 5%. With the US trade policy shuffle, the big question for the Monetary Policy Committee (MPC) is how this change will affect UK inflation pressure. Horsfield, an economist for Investec, suggests that the easing environment points to further interest rate cuts.
Some suggest that uncertainty around the US trade policy may slow down UK economic growth. Businesses might hold back on investments, while consumers may cautiously dial back their spending. However, some positive factors may come into play as well, such as a weaker US dollar and falling oil prices potentially easing inflationary pressures.
Edward Allenby, UK economist at Oxford Economics, expresses that the MPC will need to examine the influence of the US tariff announcements on its thinking beyond the May interest rate decision. He predicts they may downgrade their near-term growth and inflation forecasts on Thursday. This makes Thursday’s decision a significant one, as it will illuminate the MPC's perspective on the new trade landscape and the factors they will focus on in future policy decisions.
Interestingly, Europe's central bank recently slashed interest rates and declared that future rate decisions will rely heavily on the evolving trade policy uncertainty. Whether it's the UK or the European Central Bank, it seems that trade policies are forcing central banks to exercise caution and react on a meeting-by-meeting basis.
By Anna Wise, PA Business Reporter 📅 April 24, 2023
The Bank of England's decision to potentially lower interest rates is a response to the financial impact of the US tariffs on the UK economy, aiming to provide cost relief for borrowers. Businesses and financial markets are already anticipating this move, which could stimulate the economy in light of uncertainties caused by the US trade policy.
