Ear to the Ground

9 May 2025

This was a week of central banks sitting down to set their latest monetary policy.  In the UK the Bank of England reduced the base rate by 0.25%, which was in line with expectations, to 4.25%.  The vote was by no means unanimous, however.  Two member of the committee voted for a larger cut of 0.5%.  Conversely, two voted to remain on hold at 4.5%, meaning that only five voted for the 0.25% cut actioned.  They remain committed however to ensuring that inflation returns to the 2% target. 

Future interest rate decisions will be dependent on inflation dynamics but also how risks continue to play out.  The Bank recognised that economic uncertainty has risen due to the announcement of the new US tariffs, not just here in the UK but globally.  They have the potential to weaken the global economy, with the market speculating that this could mean we see more and quicker interest rate cuts moving forward.

In the US, meanwhile, the Federal Reserve took the decision to keep rates on hold at 4.25%-4.50%.  This was in line with the consensus forecast.  The central bank continued with their ‘wait and see’ approach.  In their statement following the decision, it was recognised the need to be patient in light of the uncertainty which was in evidence.  This has been heightened by the tariff announcements, with the fear being that they could give rise to a pick-up in inflation but also slow economic growth, something also recently acknowledged by the International Monetary Fund (IMF).

In terms of US finances they continue to deteriorate.  The trade deficit widened in March to a new record high of $140.5bn.  The most recent climb may have been artificially higher due to a pickup in imports in anticipation of tariffs being announced at the start of April.  Either way, I am pleased my own personal finances are not in the same shape!