Bank of England cuts interest rates, but slow growth and possible tariffs on the horizon means decision making won’t get any easier

The Bank of England’s Monetary Policy Committee (MPC) decision to cut base rates today by 0.25%, from 4.75% to 4.50% came as no surprise. 

,Chris Helyar, Partner in LCP’s investment team commented: “With the economy seemingly flat on its back in the final months of 2024 and business confidence at a low ebb, the MPC probably felt it had little option but to apply a dose of monetary medicine.  But looking a little further out, it’s fair to say, decision making is likely to get complicated.” 

He added: 

“For a variety of reasons, such as rising energy costs and the potential pass through to consumer prices of Chancellor Reeves’ employer National Insurance hike, inflation could be rising and well above the 2% target again soon. The combination of no / slow growth and pricing pressures would make for a head scratching monetary conundrum. 

“And that’s before the MPC considers the impact of possible US trade tariffs. Tariffs applied by the US to other countries’ products could see those goods redirected to the UK affecting domestic producers. And while the UK has escaped President Trump’s wrath so far, tariffs levied on UK exports to the US would raise their price for American consumers, likely reducing demand for them. Whether direct or indirect in their effect, tariffs would act as a deadweight on UK plc.”