We welcome US-UK trade agreements

Bank of England Governor Andrew Bailey explained the decision to cut the policy rate to 4.25% following the May meeting and responded to questions during the post-meeting press conference.

Key takeaways from Governor Bailey’s press conference

• Interest rates are not on auto-pilot.
• Disinflation in domestic prices and wage pressure is continuing.
• We expect wage growth to moderate going forward.
• The overall impact of tariffs on inflation remains uncertain.
• We welcome UK-US trade agreement.
• US-UK trade deal would help to reduce uncertainty.
• We need to watch very carefully for second round effects.
• It is important to look at how markets have responded to trade news.
• I was very undecided on rates where we were going to be after the last MPC meeting.
• I am a bit more confident about pay settlements.
• Impact of national insurance contributions increase has not gone away as a story.

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This section below was published following the Bank of England’s (BoE) interest rate decision at 11:02 GMT.

The Bank of England trimmed its benchmark interest rate by 25 basis points to 4.25% at its May meeting, in line with market expectations.

However, the decision revealed a notable split within the Monetary Policy Committee: while five members voted to cut rates by 25 basis points, two members favoured a 50 basis point reduction (Dhingra and Taylor), and two members voted to keep rates unchanged (Mann and Pill).

BoE policy statement takeaways

• BoE says “a gradual and careful approach to further withdrawal of monetary policy restraint remains appropriate.”
• BoE repeats “monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.”
• BoE says monetary policy is not on a pre-set path.
• BoE says increase in trade tariffs means global growth prospects have weakened but drag on UK growth and inflation likely to be smaller.
• BoE’s Bailey: Inflation pressures easing, so we were able to cut rates today.
• BoE’s Bailey: Past few weeks have shown unpredictability of global economy, so we need to stick to gradual and careful approach to further rate cuts.
• BoE: Progress on domestic disinflation is generally continuing, pay growth is expected to slow significantly over rest of 2025.
• BoE: MPC considered a range of possibilities for how domestic inflation pressures could evolve and circumstances that could require changing course of policy.
• BoE forecast shows CPI in one year’s time at 2.4% (Feb forecast: 3.0%), based on market interest rates and modal forecast.
• BoE forecast shows CPI in three years’ time at 1.9% (Feb forecast: 1.9%), based on market interest rates.
• BoE forecast shows CPI in two years’ time at 1.9% (Feb forecast: 2.3%), based on market interest rates.
• BoE forecasts GDP growth in 2025 +1.0% (Feb forecast: +0.75%), 2026 +1.25% (Feb: +1.5%), 2027 +1.5% (Feb: +1.5%) based on market rates.
• BoE forecasts unemployment rate in Q4 2025 4.7% (Feb forecast: 4.5%); Q4 2026 5.0% (Feb: 4.7%); Q4 2027 5.0% (Feb: 4.8%).
• BoE estimates private sector wage growth ex-bonuses 3.75% YY in Q4 2025 (Feb forecast: 3.75%), Q4 2026 2.75% (Feb: 3%); Q4 2027 2.75% (Feb: 3%).
• BoE: Market rates imply less BoE loosening than in Feb, show bank rate at 3.7% in Q4 2025, 3.6% in Q4 2026, 3.6% in Q4 2027 (Feb: 4.2% in Q4 2025, 4.1% in Q4 2026, 4.0% in Q4 2027).
• BoE estimates GDP +0.6% QQ in Q1 (March forecast: +0.25%), driven largely by erratic factors and underlying growth around zero; sees +0.1% QQ in Q2 with risks to downside.
• BoE expects inflation to peak at 3.5% in Q3 on a quarterly basis, previous forecast 3.75%.

Market reaction to BoE policy announcements

GBP/USD picked up extra upside impulse further north of the 1.3300 barrier following the BoE’s decision to trim its policy rate. Investors will now shift their attention to the upcoming press conference by Governor Andrew Bailey.

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This section below was published as a preview of the Bank of England’s (BoE) interest rate decision at 06:00 GMT.

• The Bank of England is expected to lower its policy rate to 4.25%.
• UK inflation figures remain well above the BoE’s goal.
• GBP/USD receded from recent peaks, hovering around the 1.3300 zone.

The Bank of England (BoE) will announce its latest monetary policy decision on Thursday in what marks its third rate-setting meeting of 2025.

Markets widely expect the central bank to reduce its benchmark interest rate by 25 basis points to 4.25% after staying on the sidelines at its March 20 gathering.

The Monetary Policy Committee’s (MPC) decision will be accompanied by meeting Minutes and the Monetary Policy Report (MPR), offering a window into the internal debate, while Governor Andrew Bailey will address reporters in a post-decision press conference. His remarks will be scrutinised for any shift in tone, particularly around inflation risks, the potential of tariffs, and the likely timing of future rate reductions.

With the rate move largely priced in, the focus now shifts to the Bank’s forward guidance and its updated economic outlook — key signals that could shape expectations for the next few months.

UK economic outlook: Sticky inflation, tariffs, subdued growth

The Bank of England held interest rates steady in March, as widely expected, with eight members of the Monetary Policy Committee voting to maintain the benchmark rate. Swati Dhingra was the lone dissenter, backing a 25-basis-point cut in a nod to building disinflationary pressure.

The decision came alongside fresh inflation data that surprised to the downside. Figures from the Office for National Statistics (ONS) showed annual headline CPI eased to 2.6% in March, down from 2.8% the previous month. Core inflation, which strips out volatile food and energy prices, also declined, falling to 3.4% — a further signal that underlying price pressure is gradually retreating.

Markets responded by firming up their bets on rate cuts. Interest rate futures now fully price in 100 basis points of easing by year-end, equivalent to four quarter-point reductions, up slightly from 94 basis points last week.

BoE officials have increasingly pointed to external risks as a factor in their outlook. Some policymakers noted that recent tariffs announced by US President Donald Trump could ultimately have a disinflationary effect on the UK. Governor Andrew Bailey, speaking during the International Monetary Fund’s spring meetings, warned that rising trade tensions could weigh on global growth.

The IMF echoed those concerns as it cut its 2025 growth forecast for the UK to 1.1%, down from 1.6%, reinforcing the case for a more dovish stance from the central bank in the months ahead.

That said, traders will be watching Bailey’s press conference for any signals on whether the BoE is preparing to accelerate its rate-cutting cycle in the face of softening inflation and global uncertainty.

How will the BoE interest rate decision impact GBP/USD?

Investors are bracing for the BOE to lower its benchmark rate to 4.25% on Thursday at 11:02 GMT. The interest rate decision will be slightly delayed in light of the national two minutes of silence to commemorate the 80th anniversary of Victory in Europe Day.

While the decision itself is largely priced in, attention will centre on the vote split within the MPC and remarks from Governor Andrew Bailey for clues on the policy path ahead.

With expectations firmly set, the British Pound may show a muted reaction to the rate announcement but could shift direction depending on how dovish the tone proves to be.

In the lead-up to the meeting, GBP/USD appears embarked on a consolidative phase around the 1.3300 region, driven more by US Dollar (USD) dynamics and shifting sentiment around US trade policy than domestic catalysts.

“Cable came under renewed downside pressure after hitting more than three-year tops around 1.3440 on April 28, though it seems to have met some decent contention near 1.3260 so far,” said Pablo Piovano, Senior Analyst at FXStreet. He added that a clear break above the 2025 high could pave the way for a move toward the 2022 peak at 1.3748 reached on January 13.

On the downside, Piovano pointed to the 200-day Simple Moving Average (SMA) at 1.2849 as key support, followed by the provisional 100-day SMA at 1.2744, which precedes the April floor of 1.2707 (April 7). “If selling pressure builds, deeper support lies at the weekly troughs of 1.2558 (February 28) and 1.2332 (February 11),” he noted.

(This story was corrected on May 8 at 06:38 GMT to say that the decision will be announced at 11:02 GMT, not 11:00 GMT, due to a last-minute change in the timing from the BoE.)