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Financial markets are now pricing in a shock interest rate cut for the UK at the next Bank of England meeting following remarks by its governor.

There was a huge shift in expectations after Andrew Bailey told the Guardian that the bank could be “a bit more aggressive” in its approach.

He talked about inflation pressures being less persistent than expected but tempered his comments by saying that its main indicators on the pace of price growth would need to continue to fall.

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Mr Bailey also worried about the potential threat to prices from oil costs, given events in the Middle East. “Geopolitical concerns are very serious”.

“It’s tragic what’s going on”, he said of the escalation involving Israel and Iran’s proxies.

“There are obviously stresses and the real issue then is how they might interact with some still quite stretched markets in places.”

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He said there appeared to be “a strong commitment to keep the [oil] market stable” but “there’s a point beyond which that control could break down if things got really bad”.

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August: Bailey rules out rapid rate cuts

“You have to continuously watch this thing, because it could go wrong,” he concluded.

Oil costs have remained relatively stable this week despite worries over the potential threat to supplies in the event of a war between Israel and Iran.

Despite the caveats from Mr Bailey, 98% of market bets were on a rate cut of 0.25 percentage points for the Bank’s meeting on 7 November. Most also saw a further cut coming in December.

Ahead of Thursday’s market open, a majority of investors had expected no change to the rate until December, given sticky elements from services inflation and continuing pressure from the pace of wage rises in the economy.

The Bank had warned in August that it would take a data-driven approach to cuts beyond the quarter point reduction it introduced at that time.

The Bank rate was held at 5% at September’s meeting.

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Sept: Bank of England holds interest rates

August’s decline marked the first downwards move to borrowing costs since the Bank began hiking rates aggressively in December 2021.

The rises were initially a response to the price growth seen as the economy re-opened following COVID restrictions but inflation soon soared when Russia’s invasion of Ukraine sparked the energy-driven cost of living crisis.

Market hopes of a reduction as soon as the next meeting of the Bank’s monetary policy committee could help fixed rate mortgage costs ease further and more quickly.

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The shift in rate cut expectations meant that the pound’s winning run of 2024 found a reverse gear.

Sterling was a cent and a half down against the US dollar and a cent lower versus the euro to stand at $1.31 and just under €1.19 respectively.

Higher interest rates tend to be supportive of a domestic currency.

The pound’s decline was also aided by closely-watched business survey data that showed a decline in the pace of price growth being passed on in the services sector – bolstering Mr Bailey’s rate cut case.

The FTSE 100 opened 0.2% up, with the weaker pound boosting constituents who make money abroad, as those revenues are worth more when booked back in the UK.

Housebuilders were also among those to benefit as the prospect of lower interest rates will encourage buyers on affordability grounds.

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Donald Trump’s tariffs will have consequences for globalisation, the US economy and geopolitics

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Donald Trump's tariffs will have consequences for globalisation, the US economy and geopolitics

For decades, trade and trade policy has been an economic and political backwater – decidedly boring, seemingly uncontroversial. 

Trade was mostly free and getting freer, tariffs were getting lower and lower, and the world was becoming more, not less, globalised.

But alongside those long-term trends, there were some serious consequences.

Trump latest: US president announces sweeping global trade tariffs

Mature, developed economies like the UK and US became ever more reliant on cheap imports from China and, in the process, saw their manufacturing sectors shrink.

Large swathes of the rust belt in the US – and much of the Midlands and North of England – were hollowed out.

And to some extent that’s where the story of Donald Trump’s “Liberation Day” really began – with the notion that free trade and globalisation had a darker side, a side he wants to remedy via tariffs.

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Trump’s tariffs: Ed Conway analysis

He imposed a set of tariffs in his first term, some on China, some on specific materials like steel and aluminium. But the height and the breadth of those tariffs were as nothing compared with the ones we have just heard about.

Not since the 1930s has the US so radically increased the level of tariffs on all nations across the world. Back then, those tariffs exacerbated the Great Depression.

It’s anyone’s guess as to what the consequences of these ones will be. But there will be consequences.

Consequences for the nature of globalisation, consequences for the US economy (tariffs are exceptionally inflationary), consequences for geopolitics.

President Trump with his list of tariffs for various countries. Pic: Reuters
Image:
Imports from the UK will face a 10% tariff, while EU goods will see 20% rates. Pic: Reuters

And to some extent, merely knowing that little bit more about the White House’s plans will deliver a bit of relief to financial markets, which have fretted for months about the imposition of tariffs. That uncertainty recently reached unprecedented levels.

But don’t for a moment assume that this saga is over. Nothing of the sort. In the coming days, we will learn more – more about the nuts and bolts of these policies, more about the retaliatory measures coming from other countries.

We will, possibly, get more of a sense about whether some countries – including the UK – will enjoy reprieves from the tariffs.

To paraphrase Churchill, this isn’t the end of the trade war, or even the beginning of the end – perhaps just the end of the beginning.

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Donald Trump announces sweeping global trade tariffs – including 10% on UK imports

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Donald Trump announces sweeping global trade tariffs - including 10% on UK imports

Donald Trump has announced a 10% trade tariff on all imports from the UK – as he unleashed sweeping tariffs across the globe.

Speaking at a White House event entitled “Make America Wealthy Again”, the president held up a chart detailing the worst offenders – which also showed the new tariffs the US would be imposing.

“This is Liberation Day,” he told a cheering audience of supporters, while hitting out at foreign “cheaters”.

Follow live: Trump tariffs latest

He claimed “trillions” of dollars from the “reciprocal” levies he was imposing on others’ trade barriers would provide relief for the US taxpayer and restore US jobs and factories.

Mr Trump said the US has been “looted, pillaged, raped, plundered” by other nations.

President Donald Trump holds a signed executive order during an event to announce new tariffs in the Rose Garden of the White House, Wednesday, April 2, 2025, in Washington. (AP Photo/Evan Vucci)
Image:
Pic: AP

His first tariff announcement was a 25% duty on all car imports from midnight – 5am on Thursday, UK time.

Mr Trump confirmed the European Union would face a 20% reciprocal tariff on all other imports. China’s rate was set at 34%.

The UK’s rate of 10% was perhaps a shot across the bows over the country’s 20% VAT rate, though the president’s board suggested a 10% tariff imbalance between the two nations.

It was also confirmed that further US tariffs were planned on some individual sectors including semiconductors, pharmaceuticals and critical mineral imports.

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Trump’s tariffs explained

The ramping up of duties promises to be painful for the global economy. Tariffs on steel and aluminium are already in effect.

The UK government signalled there would be no immediate retaliation.

Business and Trade Secretary Jonathan Reynolds said: “We will always act in the best interests of UK businesses and consumers. That’s why, throughout the last few weeks, the government has been fully focused on negotiating an economic deal with the United States that strengthens our existing fair and balanced trading relationship.

“The US is our closest ally, so our approach is to remain calm and committed to doing this deal, which we hope will mitigate the impact of what has been announced today.

“We have a range of tools at our disposal and we will not hesitate to act. We will continue to engage with UK businesses including on their assessment of the impact of any further steps we take.

“Nobody wants a trade war and our intention remains to secure a deal. But nothing is off the table and the government will do everything necessary to defend the UK’s national interest.”

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Who showed up for Trump’s tariff address?

The EU has pledged to retaliate, which is a problem for Northern Ireland.

Should that scenario play out, the region faces the prospect of rising prices because all its imports are tied to EU rules under post-Brexit trading arrangements.

It means US goods shipped to Northern Ireland would be subject to the EU’s reprisals.

The impact of a trade war would be expected to be widely negative, with tit-for-tat tariffs risking job losses, a ramping up of prices and cooling of global trade.

Research for the Institute for Public Policy Research has suggested more than 25,000 direct jobs in the UK car manufacturing industry alone could be at risk from the tariffs on car exports to the US.

The Society of Motor Manufacturers and Traders (SMMT) had said the tariff costs could not be absorbed by manufacturers and may lead to a review of output.

The tariffs now on UK exports pose a big risk to growth and the so-called headroom Chancellor Rachel Reeves was forced to restore to the public finances at the spring statement, risking further spending cuts or tax rises ahead to meet her fiscal rules.

Read more:
What do Trump’s tariffs mean for the UK?
The rewards and risks for US as trade war intensifies

A member of the Office for Budget Responsibility (OBR), David Miles, told MPs on Tuesday that US tariffs at 20% or 25% maintained on the UK for five years would “knock out all the headroom the government currently has”.

But he added that a “very limited tariff war” that the UK stays out of could be “mildly positive”.

He said: “There’s a bit of trade that will get diverted to the UK, and some of the exports from China, for example, that would have gone to the US, they’ll be looking for a home for them in the rest of the world.

“And stuff would be available in the UK a bit cheaper than otherwise would have been. So there is one, not central scenario at all, which is very, very mildly potentially positive to the UK. All the other ones which involve the UK facing tariffs are negative, and they’re negative to very different extents.”

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Business

Donald Trump’s tariffs will have consequences for globalisation, the US economy and geopolitics

Published

on

By

Donald Trump's tariffs will have consequences for globalisation, the US economy and geopolitics

For decades, trade and trade policy has been an economic and political backwater – decidedly boring, seemingly uncontroversial. 

Trade was mostly free and getting freer, tariffs were getting lower and lower, and the world was becoming more, not less, globalised.

But alongside those long-term trends, there were some serious consequences.

Trump latest: US president announces sweeping global trade tariffs

Mature, developed economies like the UK and US became ever more reliant on cheap imports from China and, in the process, saw their manufacturing sectors shrink.

Large swathes of the rust belt in the US – and much of the Midlands and North of England – were hollowed out.

And to some extent that’s where the story of Donald Trump’s “Liberation Day” really began – with the notion that free trade and globalisation had a darker side, a side he wants to remedy via tariffs.

More on Donald Trump

He imposed a set of tariffs in his first term, some on China, some on specific materials like steel and aluminium. But the height and the breadth of those tariffs were as nothing compared with the ones we have just heard about.

Not since the 1930s has the US so radically increased the level of tariffs on all nations across the world. Back then, those tariffs exacerbated the Great Depression.

It’s anyone’s guess as to what the consequences of these ones will be. But there will be consequences.

Consequences for the nature of globalisation, consequences for the US economy (tariffs are exceptionally inflationary), consequences for geopolitics.

President Trump with his list of tariffs for various countries. Pic: Reuters
Image:
Imports from the UK will face a 10% tariff, while EU goods will see 20% rates. Pic: Reuters

And to some extent, merely knowing that little bit more about the White House’s plans will deliver a bit of relief to financial markets, which have fretted for months about the imposition of tariffs. That uncertainty recently reached unprecedented levels.

But don’t for a moment assume that this saga is over. Nothing of the sort. In the coming days, we will learn more – more about the nuts and bolts of these policies, more about the retaliatory measures coming from other countries.

We will, possibly, get more of a sense about whether some countries – including the UK – will enjoy reprieves from the tariffs.

To paraphrase Churchill, this isn’t the end of the trade war, or even the beginning of the end – perhaps just the end of the beginning.

Continue Reading

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