As the Bank of England’s Monetary Policy Committee (MPC) prepares to announce their latest interest rate decision tomorrow, speculation is mounting over whether an interest rate cut from the current level of 4.5% will materialise — and if so, how deep it might be.
Split expectations ahead of the meeting
While the consensus has steadily shifted toward expecting an interest rate cut, there remains a divergence in both timing and magnitude. Some market watchers and investment strategists expect the Bank to hold fire this week, while others predict a move — possibly a bold one.
Bob Savage, Head of Markets Macro Strategy at BNY, doesn’t expect a move in interest rates just yet. “No change in rates this week, expect a cut in July,” he said, pointing to global uncertainty and recent strong job data out of the U.S. as factors keeping central banks cautious. Although his comments are focused on the Federal Reserve, they reflect a broader caution shared by central bankers worldwide.
A 25bps or 50bps cut? The debate intensifies
Steve Matthews, Investment Director at Canada Life Asset Management, says the economic backdrop has changed significantly since the Bank’s last meeting. “A 50bps rate cut will be firmly on the agenda,” he claims, citing global trade disruption, slowing U.S. GDP and inflation now tracking close to target. However, he expects the Bank to ultimately settle for a more modest 25bps cut to 4.25%, likely through a “narrow vote,” as policymakers attempt to balance inflation risks against the need to support growth.
Theo Chatha, CFO at Bibby Financial Services, is in the “cut now” camp, arguing that all signs point to a May reduction — something that would be particularly welcome among SMEs. “Over six in 10 SMEs say they will feel more confident investing if rates fall,” he said. Yet he warns that the positive impact could be short-lived if inflation rears up again later in the year, forcing the Bank to reverse course.
Tariff trouble: The Trump effect looms large
One of the biggest wildcards influencing Thursday’s decision is the rising uncertainty sparked by President Trump’s renewed tariffs.
Jeff Brummette, CIO at Oakglen Wealth, notes that while a cut looks “nailed on,” the true focus should be on forward guidance. “President Trump’s tariffs continue to cause enormous uncertainty and may keep the Bank cautious,” he says.
That caution is echoed by Laith Khalaf, Head of Investment Analysis at AJ Bell, who notes that Trump’s policies have caused a “massive reappraisal” of the future path of UK rates. He warns that while markets are pricing in a sharp downward trajectory for rates — including a 50% chance of a base rate of 3.5% or lower by year-end — “the ultimate shape of US trade policy, and its economic effects, are about as clear as a muddy puddle in the dead of night.”
Khalaf highlights the competing inflationary and deflationary pressures caused by tariffs: rising import costs on one hand, but falling energy prices and a weakening economic outlook on the other. “It’s a multivariate, inconstant ball of confusion,” he adds, stressing that the Bank’s decision — and more importantly, its accompanying commentary — could diverge from market expectations.
Also in the ‘cut’ camp is Jack Richards, Investment Manager, Hymans Robertson Investment Services, as he explains: “We expect the Bank of England (BoE) to cut interest rates on Thursday. Inflation data over the past few months has been better than the BoE’s February forecast. Inflation is still expected to increase in the short term, but this will mainly be government-set and indexed price hikes, like mobile phone contracts, that tend to be inflation-linked. Additionally, the labour market is putting less upward pressure on inflation with lower-than-expected wage growth.
“What made this rate cut a slam-dunk, however, was the uncertainty caused by Donald Trump’s tariff policies. The latest GDP data for the UK was surprisingly strong, showing 0.5% growth in February. This may have led some members of the MPC to err on the side of caution and hold rates again. But the chaos that has subsequently ensued from the tariffs is sure to slow the UK’s economic growth prospects and accelerate the pace of rate cuts.
“Investors broadly expect this week’s rate cut, so the decision in itself is unlikely to impact the gilt market much. Investors will instead be looking to forward guidance from the MPC on how much of an impact tariffs may have on interest rate policy going forward.”
Sharing his expectations of a cut also, Guillermo Felices, global investment strategist at PGIM Fixed Income, said: “We expect the Bank of England to cut rates by 25 basis points in its May meeting, with any dissenting votes likely to be dovish rather than hawkish. On the domestic front, wage growth and services inflation are running lower than the BoE had projected in February. Add to that the deflationary impact of global trade tensions, lower energy prices, and a stronger Sterling, this meeting seems like the perfect time for the MPC to guide away from their “gradual” approach to cuts.
“That being said, April inflation data has the potential to throw a spanner in the works. Increases in water bills, council tax, and other regulated prices, as well as the higher employer NICs contributions, mean there is a good chance UK inflation goes back above 3%.
“The market’s focus will therefore be on the messaging. Will the MPC focus on the domestic economy, where the data and news flow could still be interpreted as warranting gradual cuts? Or is the focus on spillovers from global shocks, in which case a gradual approach seems out of place? We think the latter, expecting 3 more cuts after this to end the year at 3.5%.
“The front end rates market is almost in line with our view. The market prices in another cut in July and almost two more in H2. The long end of the gilts market is calmer now following the DMO’s decision to reduce long end issuance. This should increase the attractiveness of the gilt markets relative to UST markets where there is material fiscal uncertainty at the long end.”
Guidance may be the bigger story
While the actual rate decision is grabbing headlines, many believe the Bank’s tone and vote split will be more revealing. “What will be most significant is the Bank’s future guidance,” said Oakglen’s Brummette. “The front end of the yield curve should continue to perform the best, with a steepening of the curve to be expected.”
Indeed, the Bank faces a delicate communications challenge. Signal too much dovishness, and it risks undermining its inflation-fighting credibility. Stay too hawkish, and it could spook businesses and markets hoping for easing.
The adviser view: Caution, not complacency
For financial advisers and wealth managers, the coming days will be pivotal. Fixed income allocations may need adjusting in response to shifting yields, and mortgage clients should be briefed on potentially lower rates — but also the lingering risk of inflation. SMEs, meanwhile, might welcome cheaper borrowing costs, but should prepare for a volatile second half of 2025.
With market pricing leaning strongly toward at least a 25bps cut, the bigger surprise on Thursday may be a cautious tone or a split vote that tempers expectations for further easing. Either way, the Bank’s response to Trump’s trade tremors will be closely watched as the global economy enters a new phase of uncertainty.
We’ll have to wait until midday on Thursday to find out for sure but it seems from what our experts are telling us that a rate cut this week is likely. But by how much, and how fast the Bank moves afterward, will depend less on UK data and more on how global political shocks unfold in the months ahead.
Mortgage brokers are also expecting a cut
Three in every five buy-to-let (BTL) brokers expect a 0.25% cut in the base rate tomorrow, according to BTL lender, Landbay.
In a poll of 119 mortgage brokers that closed on 22nd April, Landbay asked intermediaries, “What do you think will happen to the base rate in May?” The majority of brokers (71%) expect a cut to the base rate in May.
Almost three in five (61%) are forecasting a 0.25% cut to the base rate while one in nine (11%) are predicting a 0.5% cut. Approximately one in four (27%) are anticipating no change to the base rate. A bearish 2% believe the base rate will rise.
Rob Stanton, sales and distribution director at Landbay, said: “Our findings reflect a cautious optimism among brokers and an expectation of a gradual easing of monetary policy – with a large majority anticipating a rate cut. While 61% think we’ll see rates fall 0.25%, a bullish 11% think we’ll see a 0.5% cut. That aligns with market expectations. A significant number of brokers expect no change, or even a rise, which highlights some ongoing uncertainty in the market, driven, most probably, by persistent concerns over inflation.
“While brokers are clearly trying to navigate a complex economic landscape, expectations of a potential base rate cut in May present opportunities for landlords and property investors keen to expand their portfolio.”
The latest research from Landbay follows a previous poll where brokers told the BTL lender they expect only two more interest rate cuts in 2025. At a webinar in February, Landbay polled 105 mortgage intermediaries on their view of the interest rate situation. A majority of the mortgage introducers surveyed by Landbay (54%) thought there would be two more cuts this year – only one in seven (14%) of those polled forecast three more cuts by the end of 2025. An optimistic 2% of brokers said they expected the base rate to fall to 3.5%.