Bank Of England Expected To Cut Rates As Economic Storm Clouds Gather

The Bank of England is widely expected to cut interest rates this week in a bid to shield the UK economy from slipping into reverse, amid rising unemployment and global uncertainty triggered by Donald Trump’s latest wave of import tariffs.

City traders are betting that the central bank’s nine-member Monetary Policy Committee (MPC) will opt for a 0.25 percentage point cut on Thursday, bringing the base rate down to 4%. If confirmed, this would mark the fifth rate reduction since last August, returning interest rates to their March 2023 level.

Financial markets currently price the likelihood of an August rate cut at more than 80%, with expectations of a further quarter-point cut before the year’s end.

Chancellor Rachel Reeves is expected to welcome the move, which would lower mortgage rates and reduce borrowing costs for businesses grappling with tighter margins.

However, the decision comes as the UK government faces a delicate balancing act: trying to spur growth while curbing Whitehall spending ahead of the autumn budget.

The economy contracted by 0.1% in May and 0.3% in April. Many economists have attributed the slump to growing uncertainty surrounding Trump’s tariff policies, as well as business tax increases introduced in last October’s budget that came into force in April.

Signalling further weakness ahead, job vacancies have now dipped below pre-pandemic levels, while the unemployment rate rose to 4.7% in the three months to May – the highest level since June 2021.

While Trump has signed a trade agreement with the UK to cap tariffs on most goods at 10%, he announced on Friday a fresh volley of import duties of up to 50% on other trading partners, a move expected to drag on global economic growth.

The International Monetary Fund (IMF) recently projected that the UK economy would expand by just 0.1% in both the third and fourth quarters of 2025, with growth expected to rise only marginally to 0.3% per quarter in 2026.

When it meets on Thursday, the MPC is also due to publish updated economic forecasts, which could paint an even bleaker picture—raising concerns that the UK may be heading into a period of stagflation, with slowing growth coinciding with persistently high inflation.

According to the latest official data, the Consumer Prices Index (CPI) rose by 3.6% in the year to June—well above the MPC’s 2% target.