The Bank of England is widely expected to cut interest rates by a quarter-point to 4% on Thursday, as the UK economy faces rising unemployment and the impact of US tariffs. City traders put the probability of a reduction at over 80%, which would be the fifth cut since last August.
The economy shrank in April and May, with many economists blaming uncertainty from Donald Trump's tariffs and business tax rises. The unemployment rate rose to 4.7% in the three months to May, the highest since June 2021, while vacancies fell below pre-pandemic levels.
Chancellor Rachel Reeves is expected to welcome the move, which would lower mortgage costs and borrowing for businesses. However, the decision highlights the challenge of boosting growth while limiting spending before the autumn budget.
The International Monetary Fund has forecast the UK economy will grow by just 0.1% in the third and fourth quarters. The MPC's fresh forecasts on Thursday may be even gloomier, with inflation at 3.6% well above the 2% target.
Matt Swannell of the EY Item Club predicted a split vote, with two hawkish members likely to favour no change due to rising food inflation. 'Signs of lingering price pressures will mean the committee remains cautious,' he said.
