The Latest on Trump's Tariff Impact and Global Economy
Main interest rate lowered by Bank of England due to potential economic slowdown from US tariffs.
In an unexpected move, the Bank of England has slashed its main interest rate by 0.25% to 4.25%, amid rising concerns over global growth turbulence caused by the Trump administration's tariff policies.
The decision came on Thursday, following a two-minute delay due to the two-minute silence for Victory in Europe Day. The cut was widely expected by economists, who foresee a potential trade deal between the US and the UK that may lessen President Trump's sweeping tariffs' burden.
Trump reportedly teased a "full and comprehensive" trade deal, to be announced at 10am EDT (2pm GMT), which could smoothen relationships between the United States and the United Kingdom for years to come, according to Trump's Truth Social post.
With tariffs mostly paused for a 90-day period following last year's market upheaval, including the 10% baseline tariff on UK goods entering the US, economic uncertainty remains high. So, the Bank of England has seemingly adopted a more proactive stance on loosening policy, anticipating new demand shocks from the US trade policy.
Fragile Price Pressures
Despite British inflation currently standing at 2.6%, the Bank of England chose to ignore short-term inflation risks and focus on potential threats to growth and downward price pressures. UK inflation could surpass the bank's target rate of 2% in the coming months due to a series of price increases, including domestic energy and water bills.
However, the imposition of US tariffs on British goods, and a potential US-China trade war, pose threats to economic growth and oil prices, which could ultimately lead to price pressures easing due to lower demand.
In contrast, the US Federal Reserve left its key rate unchanged last Wednesday, as policymakers assess the impact of tariffs on the American economy before making any moves. Inflation rates worldwide have dropped significantly from levels seen just a couple of years ago, partly due to sharp central bank borrowing cost increases post-pandemic.
While inflation rates have decreased from multidecade highs, central banks, such as the US Federal Reserve, are not expected to return to the super-low interest rates that prevailed in the years following the 2008-2009 global financial crisis and during the pandemic.
Read more
Trump Turning the Dollar Upside Down? Its Impact on the Euro
Eurozone's Recovery Falters Despite Improvement in Manufacturing
Will the Federal Reserve Ignore Trump and Maintain Stability This Week?
- Macro economy
- Interest rates
- Trade war
- Federal Reserve
- European Central Bank
- Bank of England
Enrichment Data:
Overall:
The Global Impact of Trump's Tariff Policies
The Trump administration's recent tariff policies carry far-reaching implications for the global economy, causing potential disruptions and divisions. These tariffs, implemented on April 2, 2025, include a general 10% minimum tax on all US imports, escalating rates for specific nations [1]. The tariffs are forecasted to generate substantial revenue but also trigger economic contraction, including a reduction in GDP growth and increased inflation [1][3].
Global Economy:- GDP Growth: The GDP growth is projected to drop by approximately 1.4% in 2025, a significant decrease from the expected 1.9% [2].- Inflation: There are predictions of inflation due to the increased costs associated with higher tariffs [3].
US-UK Relationship
The tariffs have created considerable distress in trade relations between the US and the UK, causing an impending trade deal to alleviate some of these pressures. In reaction to these policies, the Bank of England has implemented measures to counter potential economic shocks, reflecting concerns over the tariff policies' impact on global growth [5].
Key Developments:- Trade Deal: The expected trade deal is predicted to ease tariffs on UK goods entering the US, thereby reducing the financial burden of tariffs [5].- Tariff Pause: Many tariffs, such as the 10% baseline tariff on UK goods, were paused for 90 days following market instability [5].
Central Bank Actions
In response to these policies, central banks, like the Bank of England, are adjusting monetary policy to stabilize economic conditions:
Monetary Policy Adjustments:- Interest Rate Cuts: The Bank of England has decreased its main interest rate to 4.25% to mitigate potential growth shocks caused by the tariffs [5].- Proactive Approach: The Bank has shown a proactive stance by consistently lowering borrowing costs every three months since August 2024, reflecting its vigilance toward economic uncertainties [5].
- The Bank of England has cut its main interest rate to 4.25% in response to the Trump administration's tariff policies, anticipating new demand shocks from the US trade policy.
- In contrast, the US Federal Reserve, despite inflation rates decreasing from multidecade highs, is not expected to return to super-low interest rates seen after the 2008-2009 global financial crisis, even though inflation rates have dropped significantly.
- The anticipated trade deal between the US and the UK could ease tariffs on UK goods entering the US, potentially lessening President Trump’s sweeping tariffs’ burden.
- The Trump administration's tariff policies, including a general 10% minimum tax on all US imports, are forecasted to trigger economic contraction, with predictions of inflation and a significant decrease in GDP growth globally.
