On May 8, 2025, the Bank of England (BoE) reduced its main interest rate by 0.25 percentage points to 4.25%, marking the fourth rate cut since August 2024. Governor Andrew Bailey cited easing inflationary pressures and global economic unpredictability—particularly stemming from U.S. tariff policies under President Trump—as reasons for a cautious and gradual approach to further cuts. The Monetary Policy Committee’s vote revealed differing opinions: two members favored a deeper cut, while two voted to hold rates steady. Despite the expectation that inflation, currently at 2.6%, will rise slightly in the short term due to price increases and tax hikes, Bailey anticipates it will return to the 2% target within two years. A partial alleviation of economic concerns came as the U.S. and U.K. announced a trade deal, with the U.S. reducing tariffs on British autos, steel, and aluminum, although a 10% baseline tariff remains. Unlike the BoE and the European Central Bank, the U.S. Federal Reserve has maintained its rates, opting to observe the impact of tariffs before taking action. Analysts predict further rate cuts in the U.K., though the split committee vote may complicate future policy messaging.
UK-US Trade Deal: A Step Forward with Lingering Concerns
The recent UK-US trade agreement has been hailed as a significant development in bilateral relations. The deal includes tariff reductions on British steel and car exports, aiming to protect jobs in these sectors. However, it maintains a 10% baseline tariff on most goods, leaving many small and medium-sized enterprises (SMEs) in a state of uncertainty. The Federation of Small Businesses (FSB) has reported low confidence among SMEs, citing ongoing damage control efforts caused by the previous imposition of US tariffs. FSB leaders emphasized the need for clearer plans to support SME trade.
Despite these concerns, large businesses and organizations like the British Chambers of Commerce welcomed the deal as a positive step towards improved trade relations, though they urged further actions for comprehensive free trade. Prime Minister Sir Keir Starmer echoed the sentiment that the deal marks only the beginning, committing to continued efforts to expand the agreement’s benefits.
Public Skepticism and Strategic Implications
While the trade deal has garnered support from various sectors, public skepticism remains. A recent poll revealed that fewer than one-third of Britons and just 44% of Americans believe former President Trump will honor the deal. Trump’s erratic tariff policies have damaged U.S. credibility, prompting growing preferences, especially among younger Britons, for China as a more reliable trade partner.
These developments underscore the complexities of international trade negotiations and the challenges of balancing economic interests with political considerations. As the situation evolves, stakeholders will be closely monitoring the implementation and impact of the UK-US trade agreement.
