The Bank of England lowered its key rates by a quarter point to 4.25%, the second rate cut in 2025.
Authorities are taking advantage of inflation, which is on a downward trend. At 2.6%, it is still above London's targets but is a step back from recent months—in January, it was still 3.0%.
Decision was not unanimous
Faced with significant uncertainty, the British monetary authorities intend to continue cautiously lowering rates, gradually allowing inflation to return to its 2.0% target.
However, this month's decision was not unanimous because, like many central banks, the Bank of England is wondering how the ongoing changes in global trade will impact price growth in the medium and long term.
Even within the Monetary Policy Committee, views diverge. While most members voted in favour of a 0.25% cut, some would have preferred the status quo, while others would have preferred a 0.5% cut.
New trade order brings good and bad news
In the immediate future, it is easy to assume that, with China facing significant obstacles to exporting to the United States, its products will flood the rest of the world, resulting in a generalized drop in prices and controlled inflation.
However, in the medium and long term, the disruption to existing production and supply chains and the replacement of specific players with less efficient and/or more expensive ones will negatively impact the chain's efficiency.
This should be reflected in higher production costs for everyone, which will ultimately translate into increased prices and, ultimately, higher inflation.
Therefore, the challenges are considerable, and the monetary authorities in London have revised their growth forecast for 2026 downward while slightly strengthening it for 2025.
The United Kingdom may be attractive
This rate cut is intriguing because it comes as Donald Trump is promoting the prospect of a free trade agreement between the United States and the United Kingdom.
Such an agreement would be a real boost for the British economy, which has been seeking such an outcome since Brexit. It remains to be seen what form this agreement will take.
At this stage, we are investing in the United Kingdom through companies we consider promising, such as BAE Systems and Diageo.
The United Kingdom Base Rates
(In %)
The Bank of England has lowered its base rates again. But in the current environment, what happens next remains highly uncertain.