BOE governor urges caution on interest rate cuts due to trade risks

Bank of England (BOE) governor Andrew Bailey has signaled a cautious approach to changes in monetary policy. He noted that the prospect of further rate cuts is now clouded by significant uncertainty, driven largely by the unpredictability of US trade policy.

Economists surveyed by Reuters now expect just one rate cut from the UK central bank before year-end and only two over the next 12 months, which is a sharp downgrade from their previous forecast of quarterly policy easing.

Bailey warned that an unexpected inflation surge from 2.6% to 3.5%, coupled with a worsening labor market outlook, is forcing the BOE to proceed with extreme caution. Under these circumstances, wage growth trends have become the critical factor guiding future interest rate decisions.

Despite strong economic growth in the first quarter, Bailey highlighted discrepancies between official data and business surveys. These mixed signals further complicate monetary policy decisions. The Bank of England considers the current GDP expansion temporary, expecting sustained 1.5% growth only by 2027.