Bank of England governor Andrew Bailey last night said he takes the threat posed to growth by trade turmoil ‘very seriously’ as investors bet on two rate cuts in two months.
Bailey’s comments at an event in Washington came as the latest evidence emerged that Labour’s tax hikes and US tariffs are battering the economy.
As fears of a downturn grow, investors are betting on back-to-back rate cuts in May and June – a boost for households and businesses hoping for cheaper borrowing costs.
That would bring official interest rates down from 4.5 per cent today to 4 per cent in just eight weeks’ time.
Financial markets also see a better than 50/50 chance of rates falling to 3.5 per cent by the end of the year.
Bailey, who is attending the International Monetary Fund’s spring meetings, said the Bank must ‘take very seriously the risk to growth’ from Donald Trump’s trade wars – as it ponders the impact ahead of its next rates meeting two weeks from now.
Recession threat: Investors are betting the Bank of England will cut interest rates in May and June, from 4.5% to 4%
Britain’s position as an ‘open economy’ meant it must consider not just tariffs on the UK but ‘the effect on growth in the rest of the world’, Bailey said.
It came as S&P Global said its index of activity for British firms hit 48.2 in April – its lowest since November 2022 – from 51.5 in March – below the 50 mark that separates growth from decline.
‘The collapse in confidence and drop in output during April raise red flags as to the near-term economic outlook and add pressure on the Bank to reduce interest rates again,’ said Chris Williamson, chief business economist.
Exports suffered the biggest fall since May 2020 after President Trump announced his ‘liberation day’ tariffs.
And business costs rose at the fastest rate in more than two years as Rachel Reeves’ £25billion National Insurance tax hike and rise in the minimum wage kicked in. S&P Global also warned of ‘aggressive’ job cuts.
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