The Bank of England has lowered interest rates by a quarter to 4.25%, but stressed that this is not a preset way to reduce further, as it prepares for the impact of U.S. President Donald Trump's trade policy.
BOE's monetary policy committee prescribed three ways of distribution ahead of the decision, which came before announcing a US-UK trade deal, which London hoped would limit tariffs on UK exports.
While a quarter-point cut is expected on Thursday, MPC insists it will retain a “gradually cautious approach” to promote additional slowdowns, which prompts traders to lower downs this year.
"Interest rates are not within the range of autonomous driving - impossible," said BOE Governor Andrew Bailey.
Now, traders priced on two further tax cuts this year, with an opportunity of about 40% being one-third, down from the level suggested by the swap market than 80% before the meeting.
"This is a more split MPC," said Sanjay Raja, chief economist at Deutsche Bank. "The probability of continuous back-to-back reduction should decrease on this back."
While most of the five MPC members supported layoffs, the two favored a larger half-point reduction and the two wanted interest rates to stay at 4.5%.
“Overall, it was a hawkish surprise,” said FX strategist Francesco Pesole, who stressed that BOE chief economist Huw Pill was one of the people who voted for the unchanged.
After the vote, the pound rose by $1.33, putting it in the positive territory of the day.
The yield on gold plating in two years was inversely proportional to the price, reflecting interest rate expectations, rising 0.06 percentage points to 3.87%.
BOE has been fighting for the impact on £40 billion taxes announced by Prime Minister Rachel Reeves in his October budget and the uncertainty brought about by Trump's tariff plan.
Central banks also face the prospect of rising inflation in the coming months, partly due to higher household bills. In a series of new forecasts released on Thursday, BOE predicts inflation will peak at 3.5% in the third quarter before returning to the central bank's 2% target in 2027.
The meeting this week is the first time since Trump announced global tariffs last month, which BOE said helped weaken the global growth outlook, although it added that "the negative impact on UK growth and inflation may be smaller".
British officials suggested that deals with Washington on Thursday could be subject to scope restrictions and are mainly concentrated in the automotive and steel industries. Bailey said the deal would be "welcome" news. "It will help reduce uncertainty, which is important," he said.
The basic growth rate of UK GDP has slowed since mid-2024, with the forecast of a 1% growth this year and a weaker economy in 2026 than expected by 1.25%.
BOE's new forecast assumes that Trump's so-called reciprocity tariffs on countries around the world will remain suspended after the current 90-day interruption, but high barriers between the United States and China will continue.
It said it expects global trade tensions to lower UK GDP levels by 0.3% over a three-year period, a relatively small impact.
BOE's forecast is based on market expectations, showing that its key interest rates will drop to more than 3.5% in 2026, a steeper pace than what was built into the BOE's February forecast round.
Bailey voted on the group, advocating a quarter of lowering, while two outside members (Swati Dhingra and Alan Taylor) sought a bigger half.
In calling for the 4.5% rate, pill and external MPC member Catherine Mann cited concerns about "continuing inflation" as well as a resilient labor market and higher household inflation expectations.