It’s a busy, busy day in the UK. The Bank of England has lowered interest rates and the UK and US are poised to announce a trade agreement to reduce tariffs. The British pound has not showed much reaction to all the news. In the North American session, GBP/USD is trading at 1.3340, up 0.40% on the day.
BoE lowers rates to 4.25%
The Bank of England has lowered rates to 4.25% from 4.5%. The decision, which was expected, brings the cash rate to its lowest level since March 2023 and is the second cut this year.
The vote was expected to be unanimous but only five members voted for the quarter-point cut, with two votes for a larger half-point reduction and two votes for no change.
Bank of England Governor Bailey pointed to lower inflation as the factor behind the rate cut but added that the global economy had become unpredictable due to US tariffs. Bailey added that he planned to stick to a “gradual and careful approach to further rate cuts” in order to ensure that inflation remained low and sustainable.
The US and UK have apparently reached a trade agreement, with details to be provided later in the day. The deal is expected to reduce tariffs between the two countries and will be presented as a political victory by President Trump and Prime Minister Keir Starmer.
Powell pushes back against Trump
The Fed decision to maintain interest rates was no surprise. The markets were looking for Fed Chair Powell to push back against President Trump’s blunt calls to lower rates. Powell responded forcefully, saying if the tariffs remained in place the likely result would be stagflation, a combination of high inflation and high unemployment with little growth. Powell added that he was in no rush to lower rates.
