The Bank of England (BoE) is widely expected to cut interest rates next month, as president Donald Trump's tariff blitz threatens to ignite a global recession.
Investors are increasingly betting on rate cuts by central banks worldwide in an effort to shield their economies from the broader economic fallout.
The UK has been hit with a 10% tariff on all goods exported to the US, a move Trump claims is retaliation for the UK’s own duties on American goods.
The BoE's main rate stands at 4.5%, with initial forecasts predicting two rate cuts this year. However, the uncertainty stemming from the US tariffs has shifted those expectations, with many now anticipating at least three cuts.
Chris Robinson, MPS director at Premier Miton, said: "If tariffs remain as they are with the UK and Europe, it is looking likely that the Bank of England will increase the number of interest rate cuts by year-end on expectations of slowing growth.
"At present, bond markets are pricing in at least three interest rate cuts by the BoE of 0.25% each. It is for this reason we have seen a steepening in the UK government bond curve, with the short end coming down and long end rallying."
Three 25 basis-point cuts would take the base rate from its current level to 3.75% by year-end but a former rate setter is urging Threadneedle Street to move faster.
Read more: Should you buy gold as Trump tariffs sparks surge in demand?
Former deputy governor Charlie Bean is suggesting a half-percentage-point cut to 4% in May.
“It is not just the tariffs that are the problem, it is the huge uncertainty these actions have created, delaying buying and investment decision by businesses and consumers,” Bean told the Guardian .
Sanjay Raja, chief UK economist at Deutsche Bank ( DBK.DE ), said: "Big picture, while we remain attuned to the risk of larger rate cuts, given the uncertainty surrounding the global economy and the prospect of more tightening in credit and financial conditions, we think the bar for 'forceful' rate cuts is still high (even if we are likely to see one or two votes for a 50bps rate cut in May).
"For now, our base case remains: we see four more rate cuts this year, with the MPC more likely to stick to quarter-point changes given the rise in headline CPI alongside the rather uncomfortable rise in household and business inflation expectations – something the committee itself was concerned with in its March policy deliberations.
"That said, the chances of faster rate cuts are growing (albeit from a low base)."
Trump’s sweeping tariffs have put global growth at risk, the Bank of England has warned, heaping pressure on government finances and increasing the likelihood of “severe shocks” to the financial system.
Read more: UK gilt yields spike as Trump's trade war sparks 'fire sale' of US treasuries
The Bank’s financial policy committee (FPC) said its global risk environment had deteriorated and “uncertainty had intensified” since its last update in November, with US tariff announcements contributing to a “material increase in risks to global growth” and inflation levels.
Goldman Sachs raised the odds of a US recession to 45% from 35%, the second time it has increased its forecast in a week, amid a growing chorus of such predictions by investment banks because of the escalating trade war.
Sarah Coles, Yahoo Finance UK columnist and head of personal finance at Hargreaves Lansdown, said the Bank of England, and other countries' central banks, "will be really looking to cut interest rates as much as possible in order to support growth".
"And of course mortgage companies start to price that in right away and we've already seen mortgage rates start to fall and we should see plenty of that in the coming days," she added.
Despite the mounting pressure to cut rates, the BoE has taken a cautious approach to inflation management. Following a brief drop in inflation to the Bank's 2% target in May last year, it kept rates steady until August, before making further reductions in November and February. Inflation has since ticked back up to 2.8%.
Matthew Ryan, head of market strategy at global financial services firm Ebury, told Yahoo Finance UK : “While market participants were quick to price in a more aggressive pace of easing from the Bank of England, we do not think that the MPC will jump the gun at this stage.
"Britain’s economy actually appears relatively well placed to weather the storm of the tariffs, not least given Trump’s lenient stance towards the UK and our low exposure to US demand.
“For now, while we think that a 25bp rate reduction at the May meeting is almost a certainty, we think that the BoE will maintain its gradual approach to cuts. The MPC’s priority remains on inflation, not supporting the growth outlook, and committee members will still be wary of upside risks to prices, particularly stemming from the government’s tax hikes and minimum wage increase.”
Read more: The most bought stocks and funds for investors in March
Clare Lombardelli, deputy governor of the BoE, also warned that Trump's tariffs would put further strain on the UK’s economic growth. Last month, the Office for Budget Responsibility (OBR) slashed its growth forecast for 2025 to just 1%, even before the full impact of Trump’s tariff policies had been felt.
Julian Cane, portfolio manager at Columbia Threadneedle UK Capital and Income, said: “The imposition of US tariffs and increased uncertainty will slow the UK economy.
"That would suggest a greater likelihood of interest rate cuts in the UK. However, if the UK retaliates with tariffs against the US, then that would likely be inflationary and so might offset that to an extent."
The UK government has repeatedly stressed that it will not be rushed into retaliatory measures after the US slapped a 10% import tax on nearly all the country's products entering the US, on top of already-announced 25% levies on aluminium, steel and cars.
Chancellor Rachel Reeves has said she does not want to see further escalation. "We need to avoid a full-scale trade war," she said, as discussions continue over a potential deal.
Laith Khalaf, head of investment analysis at AJ Bell, said: "Trump’s tariff announcement might have created havoc in the stock market, but there could be a silver lining. Interest rate expectations are falling as markets price in the potential economic damage from US tariffs, and the likelihood the Bank of England will respond with interest rate cuts."
Meanwhile, BoE governor Andrew Bailey has been nominated to chair the Financial Stability Board (FSB), a global body that brings together central bankers, finance ministers, and regulators from leading economies. Bailey’s three-year appointment comes as the FSB is on high alert for potential financial fallout from the market volatility sparked by Trump’s tariff policies.
The BoE’s Monetary Policy Committee (MPC) is scheduled to meet on 8 May to announce its decision on interest rates.
Apple and Android .