Closing post
Time to recap:
Bank of England policymakers have cut interest rates by a quarter point to 4.25% to cushion the UK economy against the impact of Donald Trump’s trade war.
The widely expected move from the Bank’s monetary policy committee (MPC), its fourth cut since last August, also carried a warning that the UK economy would slow by a further 0.3% over the next three years in addition to dramatic cuts to its forecasts made earlier this year.
In a blow to the chancellor, Rachel Reeves, the MPC said a combination of uncertainty surrounding the impact of US trade policy and clouds hanging over the UK economy meant growth would be almost stagnant for the rest of the year.
Economic growth “is judged to have slowed and is expected to remain subdued in the near term”, the Bank said.
In a split vote, with two of the nine-member MPC voting for a bigger 0.5 percentage point cut and two voting to hold at the current 4.5% level, the Bank signalled a high degree of caution about the number of interest rate cuts over the rest of the year.
Thursday’s interest rate cut to 4.25% is the fourth in a run of reductions that kicked off last August. It represents a fillip for Rachel Reeves, who will hope it helps revive the feelgood factor for gloomy British consumers.
The Bank of England’s nine-member monetary policy committee (MPC) has passed judgment on the impact of Donald Trump’s trade war for the UK – and expects modestly weaker growth and inflation to be the result.
Lower global energy prices as markets anticipate weaker demand, and cheaper Chinese imports, are likely to bear down on costs, the MPC has judged.
And the trade war is likely to shave 0.3% off (already weak) growth in three years’ time, reassuring them that they have a little more space to cut rates.
Friday night post-work drinks vanishing, Lords hear
The traditional Friday night post-work drink has all but disappeared from UK city centres since the pandemic as a result of hybrid working, a House of Lords committee has heard.
“In London’s instance, the Friday night drink hasn’t gone away, it has just shifted to a Thursday,” Paul Swinney, director of policy and research at thinktank Centre for Cities, told the Lords’ home-based working committee.
“When we looked at other large cities … it appeared from the data that we have, that the post-work drink has reduced.”
Swinney cited recent Centre for Cities research that found increased home working had changed the spending habits of the nation’s commuters significantly, which could pose a challenge for service businesses that depend on footfall from office workers, such as hospitality venues, sandwich bars and coffee shops.
“In London it’s seems like it’s potentially a reallocation during the working week, but in other large cities hybrid working seems to have led to a reduction of weekday spending by workers in the city centre.”
However, Centre for Cities’ research has found that workers outside of the capital – in cities including Birmingham, Manchester, Nottingham and Liverpool – are more likely to travel into their nearest city centre during their leisure time at the weekend.
The Lords’ committee has launched an inquiry into the impact of the post-Covid increase in remote and hybrid working on employers and their employees, and the wider impact on the British economy.
Hybrid working – splitting time between the office and home or another remote location - was the standard pattern for more than a quarter (28%) of working adults in Great Britain in late 2024, according to the Office for National Statistics (ONS).
While some large employers have toughened up their office attendance policies in recent months, many workers tend to visit their workplace on the core midweek days of Tuesday, Wednesday and Thursday, and may bookend the week at home.
“Commuting trips are lower Mondays and Fridays especially,” Christina Calderato, director of strategy at Transport for London (TfL), told the committee while Thursday is the busiest day of the week on the London underground.
Tube and bus usage is at about 90% of pre-pandemic levels, Calderato said, with bus usage more consistent across the week.
She added:
“I think that speaks to the fact that people who are reliant on the bus are less able to change some of their patterns of trips than other workers.”
Friday is also the quietest day of the week on Manchester’s tram network, according to Daniel Vaughan, chief network officer at Transport for Greater Manchester, although more people travel for leisure reasons on Friday evenings.
The reduction in commuting since the pandemic and the ability of some workers to spend part of the week at home has not necessarily benefitted local businesses in smaller towns and cities in the way many had predicted.
“There hasn’t been this equivalent big bounce in local spending to match the decline in the share of spending that’s going into the city centre,” Swinney told the committee.
“From our data, it looked like suburban supermarkets had probably been the biggest winner in the shift in the share of spending happening within city centres.”
Updated
UK farmers have concerns about the US trade deal.
NFU President Tom Bradshaw has said:
“For several years, we’ve campaigned with the UK’s agricultural attachés in Washington for market access for British beef, a product globally respected for its quality and strong environmental credentials. These efforts have contributed to enabling the UK government to secure ring-fenced access for British beef exports to the US.
However, the inclusion of a significant volume of bioethanol in the deal raises concerns for British arable farmers. We’ll be engaging closely with our members to help them understand and prepare for the potential impact.
Our biggest concern is that two agricultural sectors have been singled out to shoulder the heavy burden of the removal of tariffs for other industries in the economy. While we understand this, we also know that today is the start, not the end, of a process and UK agriculture cannot continue to shoulder such imbalances in future negotiations.”
UK shares drop as bond yields rise on busy day
The US-UK trade deal has not brought much cheer to the City of London today.
The FTSE 100 index of blue-chip shares has closed 27 points lower at 8531 points, down 0.3% today. That’s its second daily fall in a row, after an unprecedented 16 daily consecutive rises.
Bond prices have also fallen, lifting the yield (or interest rate) on UK government bonds. Two-year bond yields are up by 11 basis points, or 0.11 percentage points, while 30-year bond yields are up 6bps.
That reflects City traders reassessing the chances of UK interest rates in the months ahead, following today’s split at the Bank of England.
Hmmm… Donald Trump later seems to suggest that the tariff paid by Rolls-Royce will be cut from 25% to 10%, rather than abolished completely as suggested earlier.
But he also talks about Rolls-Royce “cars” – which are actually made by BMW (at RR’s factory in Goodwood)
(The Rolls-Royce company listed on the stock market makes jet engines, and modular nuclear power stations).
Rival luxury car maker Aston Martin’s share price are up 12%.
Keir Starmer is at a Jaguar Land Rover factory. Summing up the deal, he says:
This is a deal that will protect British businesses and save thousands of jobs In Britain, really important, skilled, well paid jobs. It will remove tariffs on British steel and aluminium, reducing them to zero. It will provide vital assurances for our life sciences sector, so important to our economy, and grant unprecedented market access for British farmers without compromising our high standards.
And he says the deal means US tariffs on cars from the UK will be cut from 27.5% to 10% for 100,000 vehicles every year.
More here:
Updated
US President Trump’s 10% tariff rate on UK imports appears to be maintained, despite today’s deal.
Lutnick says “We started at 10%, and we ended at 10%”, as he outlines the deal.
He also points to a chart showing how UK tariffs on the US will drop from 5.1% to 1.8%, while US tariffs on UK goods have gone up from 3.4% to 10%.
Errrm.
— Faisal Islam (@faisalislam) May 8, 2025
The deal is: US trebles tariffs on the UK, and in return the UK cuts tariffs by two-thirds…
This from Lutnick’s chart in the White House… pic.twitter.com/pT38LaRisg
Lutnick chart says that the USA gets $6bn in extra tariff revenue from the UK and gets $5bn more in export markets in the UK pic.twitter.com/fN4Vahwx1K
— Faisal Islam (@faisalislam) May 8, 2025
Updated
Rolls-Royce shares rise after trade deal
UK jet engine-maker Rolls-Royce appears to benefit from the US trade deal.
US commerce secretary Howard Lutnick has told reporters in the White House that Rolls-Royce engines, and plane parts, will come over tariff-free to the US.
Shares in Rolls-Royce are rising, now up 4% today.
Lutnick also says the UK have “opened up new market access, ethanol, beef, machinery, all the agricultural products” as part of today’s deal.
Lutnick also reveals that the UK will announce later today it will buy $10bn worth of Boeing planes, but resists revealing which airline is involved.
Boeing’s shares have also moved higher, and are up almost 3% today.
Trump and Starmer confirm trade deal
A little later than expected, Donald Trump is announcing details of a trade deaal with the UK.
Sat in the Oval Office, the US president calls it a breakthrough deal that gives the US more access to the UK.
Back in the UK, prime minister Keir Starmer is dialled in by phone, and explains that the agreement will boost trade and create jobs.
Trump explains the UK will reduce non-tariff barriers, and will also fast track US goods though customs.
He also says there are plans to bring the United Kingdom into the economic security alignment with the United States.
Trump says:
“That’s the first of its kind. So we have a big economic security blanket and that’s very important and we feel very, very comfortable with that, because it’s been a great ally,” Trump said.
He went on to add:
“Both countries have agreed that the economic security is national security, and we’ll be working together as allies to ensure that we have a strong industrial base, appropriate export controls and protections for key technologies and industries like steel.”
Our Politics Live blog has all the details:
Steve Ryder, senior portfolio manager at Aviva Investors, reckon there’s now less chance that that Bank of England will announce an interest rate cut at its next meeting, in late June.
Ryder explains:
“As was widely expected today the BOE reduced interest rates by 0.25% and lowered their growth and inflation projections, with inflation now forecast to undershoot their target over the next two years. We expected a cautious commitment to further easing due to the uncertainty around the NIC impact.
Instead, the statement was undeniably more hawkish with the main surprise being the vote split with two members calling for unchanged rates, and one calling for a 0.50% cut.
Wall Street opens higher on trade optimism
Over in Wall Street, the main share indices have opened higher as Donald Trump’s promise of a trade deal today cheers investors.
The Dow Jones industrial average has risen by 248 points, or 0.6%, in early trading to 41,362.
The S&P 500 index is up 35 points, or 0.6%, to 5,667 points and the tech-focused Nasdaq has gained 0.9%.
Shares in chipmakers are rallying, after the Trump administration confirmed it plans to rescind and modify a Biden-era rule that curbed the export of sophisticated artificial-intelligence chips.
Nvidia are up 0.3%, while Intel have jumped 2.7%.
Pound rises after Bank split over interest rates
The pound has risen against the US dollar since the Bank of England’s interest rate cut was announced.
Traders are surprised that two policymakers opposed today’s rate cut – details here – which may be a sign that the Bank might not cut borrowing costs as much as expected this year.
Before noon, the City had expected four rate cuts this year. Now, only two more are fully priced in – on top of the one just announced.
Sterling is up a third of a cent, at $1.3333.
Matthew Ryan, head of market strategy at global financial services firm Ebury, says:
“The Bank of England appears thoroughly divided over the path ahead for UK rates, with committee members appearing at odds as to how best to tackle the acute uncertainty created by President Trump’s tariffs. In an attempt to counteract the growth risks posed by the tariffs, and in acknowledgement of progress on disinflation, the majority of the MPC voted for a 25 basis point cut, with two of the doves even favouring a 50bp move.
“Yet, surprisingly, two of the hawks were in favour of no change, with the bank suggesting that the impact of the tariffs on UK growth and inflation would probably be minimal. The MPC also reiterated the line that additional cuts would be both “gradual and careful”, a stance intended to temper expectations for aggressive easing in the coming months.
“The pound has received a modest leg up following the announcement, as markets dial back bets in favour of lower UK rates. We think that a pause is almost guaranteed at the bank’s next meeting in June, with no more than two further cuts likely to follow during the rest of the year. This cautious approach should, we believe, act to keep sterling well bid, particularly given Britain’s relative isolation from the growth risks posed by US protectionism.”
Updated
Over in the US, the jobs market continues to remain solid despite the economic damage caused by Donald Trump’s trade war.
The number of new claims for unemployment benefit dropped last week, by 13,000, to 228,000, new data shows.
That indicates that there was not a surge in layoffs in April, after Trump’s “Liberation Day” tariffs spooked the markets.
Jobless claims at 228K are in line with the recent trend. Continuing claims have been steadily rising however. pic.twitter.com/YxayJux6W0
— Kathy Jones (@KathyJones) May 8, 2025
Neil Birrell, chief investment officer at Premier Miton Investors, says:
“The US jobless claims number came bang on expectations. Despite the stresses and uncertainties overhanging at present, the US labour market is holding up well, backing up the Fed’s decision on rates.
It’s difficult to imagine the jobs market can continue to hold up like this, but the US economy is a resilient one. Every data release is going to be analysed in depth for any sign of weakness.”
Updated
Bailey: Need to watch pricing by multinational companies
Q: How concerned are you that large multinational companies might raise prices in the UK, as part of a wider programme of higher prices?
Governor Andrew Bailey says this is an interesting question – and one which the Bank of England needs to “keep a very careful eye on”.
He explains that the Bank’s analysis has distinguished between countries who impose tariffs, and countries who are hit by them, when assessing the impact.
[that’s because tariffs would be expected to be inflationary for the country setting them, and potentially deflationary for thosse on the other end].
But Bailey agrees that the Bank needs to watch carefully for signs that companies decide to impose “pricing solutions right across the world”.
Back at the Bank of England, governor Andrew Bailey has been asked whether the real game-changer for the UK economy would be de-escalation between the US and China, rather than whatever Donald Trump announces this afternoon.
Bailey agrees, saying China is a “very important part” of the trade story. so whatever happens between the US and China will be significant.
He also points to the weak domestic demand within China as an example of imbalances within the global economy.
Today’s three-way split regarding the MPC’s vote on interest rates confirms the difficulty of making predictions about developments in UK inflation and GDP growth, says Professor Costas Milas, of the University of Liverpool’s Management School.
He tells us:
President Trump’s “stop-go” trade policies will definitely harm global growth and UK growth as businesses remain unwilling to invest at least until the tariff-related “fog” clears. This is reflected in the Bank’s latest GDP growth forecasts.
Weak UK growth will, to some extent, reduce the impact of higher tariff rates on UK inflation which, in turn, opens the door for future interest rate cuts as soon as next month (on June 19th). Nevertheless, the very news of a possible trade deal between the UK and the US has the potential of lifting business “spirits” and creating significant momentum in UK growth.
The “downside” of this trade deal news is that the Bank’s new inflation and output projections risk becoming out-of-date immediately! That is, it is very likely that the Bank’s GDP growth rate forecasts of 1.3% for 2025Q2 and 1.5% for 2026Q2 will turn out to be significantly higher!
Bank's 5-2-2 vote split shows 'divided' committee
There’s a lot of chatter in the City about the three-way split at the Bank of England this month – with two policymakers pushing for a larger, half-point cut, and two opposing any cut at all.
Anna Leach, chief economist of the Institute of Directors, said today’s split vote underlines the degree of uncertainty facing policymakers.
Leach explains:
“The MPC voted 5-4 to cut rates today, in a surprisingly close vote by the MPC. Two members voted for a larger 50 basis point cut, but two voted to hold rates.
It is clear from the minutes that the MPC are caught between concern over higher inflation becoming embedded in expectations and downside risks to growth from global developments.
Sanjay Raja, chief UK economist at Deutsche Bank, says the Bank’s monetary policy committee now looks “more divided”, and is dragging its feet on both the speed and scale of rate cuts.
Raja tells clients:
A three-way split with two members (Dhingra/Taylor) voting for a 50bps rate reduction and two members (Mann/Pill) voting for NO CHANGE to Bank Rate. This leans more hawkish than dovish.
Put another way, we now have two members who may be thinking that policy could be sufficiently restrictive at these levels. Also it’s worth noting that prior to global trade news, most of the five voters for a quarter point rate cut were debating no change in Bank Rate. Put simply, this is still a very cautious if indeed split MPC.
Raja also flags that the Bank’s forecasts show UK GDP was revised up in 2025 (1%), revised down in 2026 (1.25%), and lowered in 2027 (1.25%), adding:
Unemployment is expected to peak higher (5%) and get there faster – another dovish tilt to the projections. Wages (private sector regular pay) were revised down to 2.75% in Q4-26 and Q4-27 – again moving in a dovish direction.
Today’s cut to interest rates should help borrowers such as mortgage-holders, assuming lenders pass it on.
But it is less cheering for savers, who could see lower savings rates.
Bailey: Excellent news that UK is leading the way on US trade deal
Bank of England governor Andrew Bailey has hailed the news that Britain and the United States are expected to announce a trade agreement in a couple of hours.
He tells journalists at today’s press conference that the Bank has been following the issue very closely.
Bailey says he hasn’t been briefed about the situation, and doesn’t know the content of the deal.
But he says:
We do now have news that suggests there will be an announcement, and we welcome that news.
I very much welcome it, and I think it’s very well done to those involved.
Bailey explains that the deal will help to reduce uncertainty within the economy.
But, he cautions, as the UK is a very open economy, so will be affected by the way tariffs affect other economies.
Bailey says:
I hope that the UK agreement, if it is indeed announced this afternoon, will be the first of many.
That will be good news all around, including for the UK economy.
It is “excellent that the UK is leading the way”, he concludes, repeating his congratulation to those involved on both sides.
Reminder: Donald Trump has already announced a trade deal between the UK and the US, saying the agreement is a “full and comprehensive one”.
Updated
Bailey: Interest rates are not on autopilot
Bank of England governor Andrew Bailey is speaking to journalists in London now, to explain why the BoE lowered interest rates to 4.25%.
Bailey starts by declaring:
The disinflation process in the UK economy has continued.
He explains that at 2.6% in March, inflation was lower than expected, meaning the Bank could take “another step” to making monetary policy less restrictive.
Bailey says the past few weeks have demonstrated that the global economic environment is uncertain.
Interest rates are not on autopilot, they cannot be.
Instead, he says, the Bank’s monetary policy committee will set borrowing costs based on the evolving economic circumstances and the outlook for inflation.
The #MonetaryPolicyReport press conference is about to start. Watch here: https://t.co/Al0xtM1ahP
— Bank of England (@bankofengland) May 8, 2025
Bank lowers inflation forecast, a little
The Bank of England has trimmed its forecast for inflation this year.
The BoE now predicts inflation will peak at 3.5% in the third quarter of this year, having previously forecast it would hit 3.7% in Q3.
That’s good news, on balance, for households, but it still means inflation is going to rise further above the Bank’s 2% target – having been 2.6% in March.
The Bank of England has drawn up two scenarios for how the UK economy could develop in the face of global uncertainty, due to the US trade war.
In the first scenario, UK demand is weaker and domestic inflationary pressures fade more quickly than in the Bank’s baseline projections, driven by elevated uncertainty.
The BoE says:
In the first scenario, greater or longer-lasting weakness in demand relative to supply, in part reflecting uncertainties globally and domestically, might further mitigate inflationary pressures over the medium term.
Underlying GDP growth had been weak, and global trade policy uncertainty had risen sharply, which was likely to weigh on household consumption and business investment. It was possible in this environment of uncertainty that precautionary saving could rise and consumption could weaken.
But in a second scenario considered by the Bank, inflation remains persistent for longer, due to wages and prices rising faster than expected.
The BoE explains:
In the second scenario, greater persistence in domestic wage- and price-setting, both from additional second-round effects related to the near-term increase in headline CPI inflation and from weaker aggregate supply, might exacerbate the persistence of inflation.
Underlying services consumer price inflation and indicators of wage growth had been moderating, but remained at elevated levels. There was evidence that the near-term inflation expectations of firms and households had recently become more reactive to changes in current CPI inflation than they had been pre-Covid. In addition, there were upside risks to inflation stemming from softer growth in potential productivity.
Prospects for global growth have weakened due to trade uncertainty
Announcing today’s decision to cut interest rates, the Bank of England warns that the trade war triggered by Donald Trump risks damaging global growth.
The BoE says:
Uncertainty surrounding global trade policies has intensified since the imposition of tariffs by the United States and the measures taken in response by some of its trading partners. There has subsequently been volatility in financial markets, and market-implied policy rates have moved lower.
Prospects for global growth have weakened as a result of this uncertainty and new tariff announcements, although the negative impacts on UK growth and inflation are likely to be smaller.
Bank of England policymakers split 5-2-2 over rate cut
The nine members of the Bank’s monetary policy committee was split three ways over today’s decision.
Five policymakers – governor Andrew Bailey, plus Sarah Breeden, Megan Greene, Clare Lombardelli and Dave Ramsden – voted for a quarter-point reduction.
But two policymakers – Swati Dhingra and Alan Taylor – voted for a half-point cut.
The minutes of the meeting explains that they favoured “a less restrictive policy path”, as:
Two members preferred a 0.5 percentage point reduction in Bank Rate at this meeting based on the outlook. The most significant contributions to the expected pickup in inflation would come from one-off tax and administered prices and past energy shocks.
Incoming wage settlements had so far been close to the Agents’ annual pay survey figure for the end of 2025, and were approaching sustainable rates, while consumer spending remained weak and investment subdued. Along with domestic demand shifts and emerging slack, recent global developments in energy and trade policy pointed to potential downward risks to global growth and world export prices.
And on the other side of the aisle, Catherine Mann and Huw Pill (the Bank’s chief economist) voted to leave interest rates on hold at 4.5%.
The minutes explain:
For these members, the labour market was proving more resilient than expected, business surveys signalled continued inflationary pressures, and household expectations of inflation had firmed. All these indicators pointed to continued inflation persistence owing in part to structural rigidities on the supply side of the economy.
Holding Bank Rate unchanged at this meeting would ensure that monetary policy remained sufficiently restrictive to weigh against stubborn inflationary pressures.
Bank of England interest rate decision
Newsflash: The Bank of England has cut UK interest rates, by a quarter of one percentage point.
The move, which matches City expectations, lowers Bank rate to 4.25%, its lowest level in around two years.
More to follow…
There’s just 20 minutes to wait until we get the Bank of England’s interest rate decision.
Reminder, it’s scheduled for 12.02pm, just after the two-minute silence to mark VE Day.
A quarter-point rate cut is still widely expected, which would bring Bank rate down to 4.25%.
Some City analysts predict an 8-1 split on the monetary policy committee – with eight members voting for a quarter-point cut (from 4.5% to 4.25), and just one voting for a larger, half-point reduction (to 4%).
Matthew Ryan, head of market strategy at global financial services firm Ebury, says:
“The Bank of England is almost certain to cut rates by another 25 basis points on Thursday as it insures against the downside risks to the UK economy posed by President Trump’s tariffs.
“We think that all nine members of the committee will vote for an immediate cut, with an outside chance that one of the doves opts for a 50bp move.
“The MPC will warn that the tariffs will likely weigh on UK growth this year, and officials may also say that the restrictions have disinflationary implications, which would be a clear bearish signal.
“We do not think that the MPC will commit to a firm path for policy at this week’s meeting, particularly as the outlook for the UK economy remains shrouded in uncertainty.
“While heightened global trade uncertainty is negative for growth, we are still yet to see the full impact on inflation and the labour market from the changes to the National Living Wage and employer NIC in April.
“Yet, the BoE may hint that a faster than “gradual” pace of cuts is warranted in light of global trade tensions, which could open the door to another rate reduction as early as the bank’s following meeting in June.”
Updated
Trump announces "full and comprehensive" trade deal with the UK
Donald Trump has declared that today should be “a very big and exciting day” for the US and the UK – a clear sign that some form of trade agreement will be announced at 3pm UK time, or 10am at the White House.
Posting on his Truth Social site, the US president says:
The agreement with the United Kingdom is a full and comprehensive one that will cement the relationship between the United States and the United Kingdom for many years to come.
Because of our long time history and allegiance together, it is a great honor to have the United Kingdom as our FIRST announcement. Many other deals, which are in serious stages of negotiation, to follow!
Our Politics Live blog is tracking the latest developments:
Shipping giant Maersk warns global container volumes could drop due to trade war
Shipping group A.P. Moller-Maersk has cut its forecast for demand this year, due to the US trade war.
Maersk warned this morning that trade disruption and geopolitical uncertainty could trigger a drop in global container volumes this year.
Maersk, a barometer of world trade, has revised down its forecast for global container market volume growth to between -1% and 4%. Previously, it had forecast 4% growth this year.
Maersk says:
The outlook for global container demand over the remainder of the year remains highly uncertain, shaped by a rapidly evolving trade policy landscape and increasing recession risks in the US.
Growth is expected to remain positive in the second quarter—particularly if shippers capitalise on the 90-day pause of reciprocal tariffs by frontloading shipments and building inventories. In the latter part of the year, there is, on the one hand, a growing risk that demand could contract, and on the other the possibility that trade rebounds if tariffs are rolled back.
The US dollar has gained ground in the currency markets today, as investors welcome the news that Donald Trump will announce a trade deal (or progress on one, at least) later today.
The greenback has gained against a basket of currencies, nudging the dollar index up by 0.5% today.
The pound has lost its earlier gains, and is now down 0.25% at $1.326.
As well as trade deal optimism, the dollar is also benefitting from last night’s Federal Reserve decision to leave US interest rates on hold yesterday.
Charalampos Pissouros, senior market analyst at XM, says:
The US dollar outperformed all its major peers on Wednesday after the Fed decided to keep interest rates unchanged and sounded less dovish than expected.
The greenback is extending its gains today, especially against the franc and the yen, both considered safe havens, as Trump’s remarks overnight about a potential trade deal further improved risk appetite.
Markets are facing a flurry of major news on interest rates, trade and conflict today, points out Russ Mould, investment director at AJ Bell.
Summing up the situation, he says:
“Investors are watching history unfold before their eyes.
“The Trump administration has already caused turmoil in the business world with the Liberation Day tariff plan. We’re now entering the next phase as countries do deals with the US, and Trump once again changes the rules as he rips up Joe Biden’s playbook.
“At the same time, heightened tensions between India and Pakistan are being watched closely, with investors hoping the situation does not escalate further. All this is happening in a week of important interest rate decisions in the UK and US, meaning investors have a lot of information to digest and that means markets are unlikely to move in a straight line.
“A deal of some kind is expected to be announced today between the UK and the US. It’s hoped that the agreement will lower tariffs imposed on certain UK goods sold into the US, but nothing is certain with Trump until we get the full details.
“A trade deal between the two countries could provide more certainty for UK businesses as to how the future will look, so they can plan accordingly. It might also put the UK in a more favourable light with foreign investors looking to dial down US exposure and wondering where they should reallocate money.”
“Against this backdrop we’ve got the next UK interest rate decision where the Bank of England is widely expected to cut the cost of borrowing. Inflation is expected to go up and consumer and business confidence has been weak of late, creating a backdrop fragile enough for the Bank of England to further ease monetary policy.
One in six UK companies anticipated being hurt by the US trade war, new data shows, highlighting the importance of the deal expected to be announced by Donald Trump later today.
The Office for National Statistics’ latest real-time economic data shows that firms expect weaker demand as they pass on costs to customers.
The ONS says:
In late April, 17% of businesses with 10 or more employees reported that they expect to be impacted by the United States tariffs in the next month; the most reported expected impacts were reduced demand and having to pass on additional costs to customers, both at 7%.
17% of businesses with 10+ employees said in late Apr they expect to be impacted by the United States tariffs in the next month.
— Office for National Statistics (ONS) (@ONS) May 8, 2025
The most commonly reported expected impacts were:
· reduced demand (7%)
· passing on additional costs to customers (7%)
➡️ https://t.co/XRKwRKAu9h pic.twitter.com/RhvUBGmFVG
The City are expecting several UK interest rate cuts this year, incuding one just after noon.
The money markets are indicating that Bank rate will be cut by 96 basis points, or almost a whole percentage point, by the end of the year. That means that four quarter-point cuts this year are all-but priced in.
Guillermo Felices, global investment strategist at PGIM Fixed Income, says:
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.
We also have an interest rate decision in Norway.
But as in Sweden, they’ve left rates unchanged at 4.5%, while hinting that borrowing costs will be lowered this year.
Norway’s central bank, Norges Bank, says:
There is uncertainty about future economic developments, but the Committee’s current assessment of the outlook implies that the policy rate will most likely be reduced in the course of 2025.
Sweden’s central bank has left interest rates on hold this morning, despite concerns about the economic outlook.
Sveriges Riksbank has maintained its policy rate at 2.25% today, with policymakers concerned that Donald Trump’s new US trade policy has increased uncertainty in the global economy.
The Riksbank says:
The increased uncertainty abroad implies that the economic outlook appears to be slightly weaker than in the March forecast. The impact on inflation is more difficult to assess.
The Executive Board considers that monetary policy is currently well-balanced and that it is wise to await further information to obtain a clearer picture of the outlook.
Today could be a major one for the UK economy, suggests the BBC’s economics editor Faisal Islam, if we get an interest rate cut and progress on a US trade deal:
🇬🇧
— Faisal Islam (@faisalislam) May 8, 2025
very possible that we get
⚖️ BoE rate cut today
🇺🇸 tariff mitigation deal with the US which leaves space for
🇪🇺substantive eradication of post Brexit red tape with EU
🇮🇳 all on heels of most intensive full fat trade deal with world’s fast growing most populous country
Shares have opened a little higher in London.
The FTSE 100 index of blue-chip shares is up 0.2%, or 16 points higher, at 8575 points.
Engineering firms IMI (+3%) – which reaffirmed its full-year guidance this morning – and Weir Group (+2.8%) are the top risers, along with technology-focused investment trust Scottish Mortgage (+2.8%), and packaging firm Mondi (+2.5%).
Among smaller companies, luxury carmaker Aston Martin’s shares have jumped by 6%. Late last month it limited sales to the US due to Donald Trump’s tariffs, so it could be benefitting from hopes of a US-UK trade deal….
British Gas profits hit by warmer weather
Britain’s warmer than usual start to spring may have helped to brighten the macroeconomic gloom for UK households (and Next!) - but it has come at a cost to British Gas, my colleague Jillian Ambrose reports.
Its parent company, Centrica, told shareholders ahead of its annual general meeting in Manchester today that the warmer weather would hit profits at the UK’s second largest home energy supplier after households were able to switch their home heating off earlier than usual.
The FTSE 100 energy giant assured investors that it still expects the supplier to remain within its £150m to £250m sustainable profit margin for the year. It added that it is also seeing “organic growth” in its business and household customer base.
This will come as welcome news after British Gas was ousted as UK’s largest home energy supplier by Octopus Energy last year, a position it has held since the privatisation of the industry in the 1990s.
Shares in Centrica have fallen by over 5% in early trading in London.
Updated
German industrial production rises amid trade tensions
Over in Germany, factory output has risen amid a rush for new goods ahead of Donald Trump’s tariffs.
German industrial production jumped by 3% in March, new data from statistics body Destatis shows.
The increase was driven by the automotive industry (+8.1%), the pharmaceutical industry (+19.6%) and the manufacture of machinery and equipment (+4.4%).
Data earlier this week showed that America’s trade deficit hit a record in March, partly due to a surge of imports of pharmaceutical products and cars.
Carsten Brzeski, Global Head of Macro at ING, says Germany industry is “bottoming out”, after a rough time.
While industrial production is still some 9% below its pre-pandemic level, recent months have shown clear signs of bottoming out. A trend that, despite US tariffs, could continue in the first months of the second quarter, as industrial orders have also improved and inventory levels have started to come down.
However, while these are clear ingredients for a typical cyclical rebound, the imposed tariffs of 10% on European goods as well as higher tariffs on automotives will still weigh on German (and European) industry. By how much will become clear over the next few months. In this regard, the stronger euro exchange rate is like an additional tariff on top of the official tariffs.
And there are more potential impediments to German industry which have nothing to do with tariffs; water levels in Germany’s rivers are currently at almost unprecedentedly low levels for this time of the year. Vessels can currently only transport around 50% of their normal cargo.
Next lifts profit guidance after warm weather boost
UK retailer Next has raised its profit forecast after benefitting from hot weather in recent weeks.
Next has told the City this morning that trading in the last three months (26 January to 26 April 2025) had been “better than expected”.
Full price sales over the quarter have risen by 11.4%, almost twice as fast as the 6.5% it had expected, as shoppers have scrambled to buy new “summer-weight clothing” as temperatures rose.
Next explains:
Our performance in both the UK and overseas was better than we had anticipated.
Sales in our Retail shops have been much stronger than we expected but, in our experience, shops benefit disproportionately from the favourable weather. So we are expecting our Retail sales to return to being broadly flat for the rest of the year.
It has lifted its guidance for pre-tax profits this year by £14m, to £1,080m.
Back in March, Next became the fourth UK retailer to report £1bn of profits for a financial year:
Updated
Halifax: house prices rose slightly in April
UK lender Halifax has reported that UK house prices nudged higher last month.
According to Halifax, the average house price increased by 0.3% in April to £297,781, a slowdown on the 0.5% growth recorded in March.
On an annual basis, prices were 3.2%% higher in April than a year ago, up from 2.9% in the year to March.
The bigger picture, though, is that prices have been “remarkable stable” over the last six months, Halifax says, down just £48 over the period.
According to lender @HalifaxBank house prices rose in April by 0.3% to £297,781. This meant the annual rate of growth on THEIR index, edged up to 3.2% but prices were down over the past three months.
— Emma Fildes (@emmafildes) May 8, 2025
The North/South price growth divide continued with the North recording record… pic.twitter.com/jzeozl7OXD
Amanda Bryden, Head of Mortgages at Halifax, reports that the end of the stamp duty holiday at the start of April did not have a major impact on the market, contrary to other reports.
We know the stamp duty changes prompted a surge in transactions in the early part of this year, as buyers rushed to beat the tax-rise deadline. However, this didn’t lead to a significant increase in property prices, with the last six months characterised by a stability in prices rarely seen since the pandemic.
While the market has cooled slightly since this rush, buyer activity remains strong in comparison to recent years.
“Mortgage rates have continued to fall, with most lenders now offering rates below 4%. Coupled with positive earnings growth that has outpaced broader inflation, these factors have helped to steadily improve affordability for many buyers.
“Overall, the market continues to show resilience despite a subdued economic environment and risks from geopolitical developments. There is likely to be a bump-up in consumer price inflation as household bills increase, but with further base rate cuts also expected, we anticipate a similar trend of modest price growth this year.”
However, last week rival lender Nationwide reported that UK house prices dropped by 0.6% on average in April, which it attributed to the rush in March to beat changes to stamp duty….
Donald Trump’s “major trade deal” announcement later today (3pm UK time) will be closely watched, for at least two reasons.
As well as the identity of the country involved, investors will want to know what the framework of the deal looks like – as a sign for how other negotiations may play out.
Jim Reid, market strategist at Deutsche Bank, explains:
In a Trump 2.0 world it often seems like the news flow doesn’t really get going until after the US market closes and today is another example of that as overnight Mr Trump has teased that a “major trade deal” will be announced today at 10am DC time (15:00 BST). This must be the very big announcement he flagged on Tuesday.
The media are all lining up behind the deal being with the UK. Given that full trade deals take years to negotiate, this will likely be a framework and it will be interesting to see whether the 10% baseline tariff stays as that will provide an important template for negotiations with other countries and a good guide to the long-term tariff strategy of the US.
Pound rises on reports Donald Trump could announce trade deal with UK today
Hopes that the US and UK have agreed the framework of a trade agreement have given the pound a small lift, and could push shares higher in London today too.
Sterling jumped as much as half a cent in early trading, to as high as $1.3356, before slipping back to around $1.332.
The move follows reports that Donald Trump is planning to announce a new trade pact with the UK later today.
Trump has caused a stir, by posting on his Truth Social site that a major trade deal would be announced today, saying:
“Big news conference tomorrow morning at 10:00am, the Oval Office, concerning a MAJOR TRADE DEAL WITH REPRESENTATIVES OF A BIG, AND HIGHLY RESPECTED, COUNTRY. THE FIRST OF MANY!!!”
Big News Conference tomorrow morning at 10:00 A.M., The Oval Office, concerning a MAJOR TRADE DEAL WITH REPRESENTATIVES OF A BIG, AND HIGHLY RESPECTED, COUNTRY. THE FIRST OF MANY!!!
— Donald J. Trump Posts From His Truth Social (@TrumpDailyPosts) May 8, 2025
From Donald Trump Truth Social 05/07/25 08:56 PM
Britain’s FTSE 100 share index is also expected to rise when trading begins at 8am, as traders anticipate that the UK could be the “big and highly respected” country involved.
A team of senior British trade negotiators landed in Washington on Wednesday as talks over a deal between the two countries gathered pace.
Officials from the UK business and trade department were attempting to get an agreement signed before a planned UK-EU summit on 19 May.
More here:
Introduction: Bank of England expected to cut interest rates today
Good morning, and welcome to our rolling coverage of business, the financial markets, and the world economy.
The Bank of England is in the spotlight today, as policymakers at the UK central bank set interest rates in the face of a global trade war, and a weak domestic economy.
To be honest, there’s not much suspense in the City this time. The BoE is widely expected to cut interest rates for the fourth time in the current cycle, at lunchtime.
Bank Rate is currently 4.5%, and many traders suspect the only question is whether the monetary policy committee restricts itself to a quarter-point cut, to 4.25%, or gets the big bazooka out and votes for a half-point cut, to 4%.
This morning, a quarter-point cut is much the more likely – it’s priced at a 95% chance in the money markets. A half-point cut would be a surprise, as it’s seen as just a 5% possibility.
James Mashiter, fixed income portfolio manager at asset manager SEI, says:
“We think the Bank of England will cut the base rate by 25 basis points, in line with market expectations.
However, with a whiff of stagflation in the air, the BoE is in a difficult position as it attempts to stimulate growth while keeping inflation expectations anchored and the bond vigilantes at bay.”
The Bank will be concerned that Donald Trump’s trade war will hurt the global economy, with a knock-on impact on UK growth (governor Andrew Bailey often mentions how Britain is an open economy).
But they’ll also have to assess the impact on inflation – if manufacturers from China, say, redirect products initially destined for the US into the UK market, at bargain prices.
Last month, the Bank warned that Donald Trump’s sweeping tariffs have put global growth at risk.
Ranjiv Mann, senior portfolio manager at Allianz Global Investors, predicts a quarter-point cut, given the downside risks for the global growth outlook, and told clients:
UK economic activity remains weak and trade policy uncertainty has risen sharply in recent months, weighing on UK consumer and business sentiment.
The Bank has been taking a cautious policy approach since it last cut rates in February given that CPI inflation remains above its target. However, business sentiment is now beginning to be weighed down by trade policy uncertainty, placing renewed downside risks for the UK economic outlook.
Short term interest rate markets are pricing at least a further three rate cuts in 2025; if the risks of a global trade war intensifies over the coming months, markets may well bring forward UK rate cut expectations.
Last night, the US Federal Reserve left interest rates on hold, and warned that Donald Trump’s tariffs were likely to raise prices, weaken growth and increase unemployment if maintained.
One housekeeping note – today’s decision, and the Bank’s latest economic forecasts, will be delayed by two minutes to honour the silence to mark the 80th anniversary of VE Day. So it’ll be announced at 12.02pm, rather than noon
The agenda
7am BST: Halifax UK house price index for April
12.02pm BST: Bank of England interest rate decision
12.30pm BST: Bank of England press conference
1.30pm BST: US weekly jobless data
Updated
