Boe vs Federal Reserve
BOE Decision
The Bank of England continued its trend of lowering interest rates at its May Policy meeting. The BoE lowered its Bank Rate by 0.25 percentage points to 4.25%. However policymakers were divided on the extent of the cut due to uncertainty surrounding the impact of US tariffs on inflation.
The reduction in rates on 8 May marks the fourth cut within the past year and the Bank considered an even bigger cut to 4% due to concerns the global trade war could hit UK economic growth.
This rate cute came just a day after the U.S. Federal Reserve kept the federal funds rate unchanged at 4.25%, as it warned that the chances of both higher unemployment and higher inflation had increased in the wake of President Donald Trump’s tariffs plan.
Earlier, it was reported that the U.S. economy had contracted in the first quarter of 2025, due in part to a massive increase in imports as retailers tried to get ahead of looming tariffs on foreign goods. According to the U.S. Bureau of Economic Analysis (BEA), GDP was down at an annualized rate of 0.3% in the first from a fourth quarter reading of 2.4%.
In its latest assessment of the economy, the Fed did not cite the tariffs specifically but noted that volatile trade activity affected the economic data it relies on to make its policy decisions — a reference to the negative gross domestic product figure reported last week.
The BoE in its decision noted that while tariffs could push prices up, the Bank believes they will ultimately lead to weaker growth and lower inflation. The Bank also projects headline inflation to rise in the coming months before peaking later this year.
It is worth noting that the BoE assessment predated the announcement of a new UK-US trade agreement. President Trump on that same day announced a trade agreement with the United Kingdom. The deal with the U.K. would include “billions of dollars of increased market access for American exports,” specifically agricultural products. The final details are being wworked out. The US still has its 10% tariff which was imposed on imported goods from all U.S. trade partners in April, including Britain.
Meanwhile in the US, the central issue for the Fed is determining how much tariffs will affect price growth going forward. At least one Fed official believes any price boost from tariffs will be short-lived and has advocated to start rate cuts sooner. However many believe that even if the tariff is lower, this fundamental anxiety related to uncertainty and unpredictability” remains, which will make it difficult for consumers, investors and business to fully recover.