UK interest rates are expected to fall at their fastest pace since the 2008 financial crisis, as the Bank of England prepares to respond to mounting global economic headwinds driven by President Trump’s escalating trade war.
Economists expect the central bank to begin cutting rates next week, lowering the base rate from 4.5% to 4.25%, with predictions of as much as a one percentage point drop over the next six months. That would mark the sharpest half-year decline since 2008, when rates tumbled from 4.5% to 0.5% in response to the global financial crash.
The expected cuts come amid fears that Trump’s protectionist policies — including a baseline 10% tariff on all imports, a 145% tariff on Chinese goods, and levies on cars and metals — will hamper UK growth and threaten economic stability.
Mortgage relief and falling borrowing costs
The rate cuts are already having a knock-on effect in the mortgage market. Lenders including Barclays, HSBC, and NatWest have reduced fixed mortgage rates this week by up to 0.25 percentage points, with many two-year fixed rates now below 4%.
For homeowners with a £200,000 mortgage, this means an annual saving of around £564. The Financial Conduct Authority estimates that 1.68 million households have fixed-rate deals expiring this year.
Race to cut: Economists call for urgency
Banks including Morgan Stanley, Barclays, and UBS are now forecasting a series of rapid cuts through 2025:
• Morgan Stanley expects the Bank to cut rates by 0.25 points at each of the next five meetings, reaching 3.25% by November, and potentially dipping to 2.75% in early 2026.
• UBS says the Bank may shift to cutting at every meeting, not quarterly, if Trump’s tariffs significantly depress UK trade and growth.
• Barclays’ chief UK economist Jack Meaning also anticipates four back-to-back cuts, highlighting the Bank’s readiness to boost growth amid rising global volatility.
The Bank of England will also update its economic forecasts alongside Thursday’s announcement, with expectations of downgrades to both growth and inflation projections. The most recent forecasts from February projected just 0.75% GDP growth in 2025 and peak inflation of 3.75% in the summer.
Government officials have cautiously welcomed the prospect of lower rates, suggesting the cuts are only possible because of fiscal discipline under Chancellor Rachel Reeves, who resisted increasing borrowing in her spring statement.
A senior government source said the US Federal Reserve now had “less room to manoeuvre” on rates because of the inflationary impact of Trump’s tariffs, giving the Bank of England a relative advantage.
The International Monetary Fund has cut its UK growth forecast for 2025 from 1.6% to 1.1%, citing global trade tensions. The Office for Budget Responsibility has warned that a full-blown trade war could wipe tens of billions from the UK economy.
Bank of England Governor Andrew Bailey and Deputy Governor Clare Lombardelli have both expressed concern in recent weeks about the impact of protectionism. Bailey said in April:
“Trade does support growth … fragmenting the global economy would be bad for growth.”
Lombardelli added that tariffs could “depress” UK expansion.
While Trump has delayed some of his reciprocal tariffs until July, his administration has signalled that sector-specific and country-based exemptions could still be negotiated — leaving businesses and policymakers grappling with continued uncertainty.
Though the UK economy faces a fragile outlook, the expected rapid fall in interest rates will offer meaningful relief for mortgage holders, businesses and consumers. But the pace and extent of recovery will hinge on global stability — and whether Trump’s trade policies escalate or ease in the months ahead.
