Bank of England set to cut rates amid inflation worries from Trump, UK budget

The Bank of England has announced second rate cut in three months today, as inflation dips to its lowest level in over three years. However, new concerns about rising prices next year, driven by both the recent UK budget and President-elect Donald Trump’s economic plans, are likely to limit the number of future cuts.

Today’s anticipated rate reduction—to 4.75%—is meant to ease financial pressures on UK households and businesses. Analysts say the move reflects policymakers’ confidence that inflationary pressures have eased

“The Bank is clearly prioritizing growth for now, given that inflation has dipped below its target,” said Andrew Bailey, former Bank of England Governor and now a senior advisor. “But with fiscal and international pressures on the horizon, it’s going to be a careful balancing act.”

Still, not everyone is optimistic about the sustained impact of lower rates. ING economist James Smith remarked, “The budget won’t change the Bank’s decision to cut rates again … but it does question our long-held view that rate cuts will speed up from now on. We expect they’ll approach future cuts more cautiously.”

The rate decision arrives just one day after Trump was elected to a second term in the U.S. with a promise to implement tax cuts and impose tariffs on certain imports. Both moves could potentially spur inflation, forcing global central banks to reconsider their own monetary policies. “The policies Trump is talking about can easily fuel inflation, not just in the US but globally,” said Fiona Greig, chief economist at Capital Economics. “The Bank of England may have to factor this in as we look ahead to 2025.”

In the UK, last week’s budget by Chancellor Rachel Reeves, which includes £70 billion in additional spending funded by higher taxes on businesses, is another potential inflationary driver. Some economists warn that businesses might pass on these higher taxes to consumers, raising prices and potentially stoking inflation. “The new budget could definitely slow down rate cuts if inflation ticks back up,” noted Smith. “The Bank will have to be watchful.”

Despite inflation concerns, central banks are broadly moving toward rate cuts after several years of aggressive hikes. With UK inflation now at 1.7%, well below the Bank of England’s 2% target, today’s expected cut signals confidence that the recent inflationary surge has been contained. However, many warn that the economic path forward will be far from smooth.

As Fiona Greig noted, “The global economy is moving in a lot of different directions at once. It’s a delicate moment for central banks, and we could see a lot of recalibration in the coming months.”