Despite Liberation Day, ‘the Bank of England may keep its powder dry for another day’

Though markets are betting on a cut from the Bank of England next month, one economist, Gabriel McKeown, Head of Macroeconomics at Sad Rabbit, has suggested Threadneedle Street may yet err on the side of caution despite the massive uncertainty caused by Liberation Day.

Mckeown believes the Bank of England will once again flag inflationary risks and also “choose to remind markets who’s really in charge by refusing to become reactionary and continuing its decidedly cautious approach to rate cuts as evidenced over the past year”.

Others believe the same. Rob Mansfield, Director at Rootes Wealth Management said, “We have seen violent drops in stock markets but asset prices and the economy are not the same thing. The Bank’s mission is to contain inflation. The tariffs are likely to be inflationary and so a rate cut could see inflation flare up. The short-sighted and easy thing to do is cut rates, but being cautious and riding this mess out could be the answer.”

Tony Redondo, Founder at Cosmos Currency Exchange, agrees that “the markets might be getting ahead of themselves. The Bank of England are infamous for always being behind the curve. I fear May will be no exception. The result could then be Threadneedle Street slashing harder later if growth dives”.

Views from FS experts on next month’s rate decision below.

Gabriel McKeown, Head of Macroeconomics at Sad Rabbit said, “In the UK, the case for a May rate cut may seem clear but only if you ignore the deeper tremors under the surface.

“Inflation is not vanquished, global policy is no longer predictable and the Bank of England, far from chasing markets, may choose to remind them who’s really in charge by refusing to become reactionary and continuing its decidedly cautious approach to rate cuts as evidenced over the past year.

“It may also be wise for the Bank of England to err on the side of caution as we are in an era when global economic policy is written not in spreadsheet models but in furious social media posts. Trump’s tariff theatrics have transformed central banking from economic science to psychological warfare. What makes this moment particularly perilous is the lack of clarity on how this escalation will be resolved, with a growing consensus that Washington will show no signs of reversing course, framing these tariffs as essential for restoring economic sovereignty and correcting decades of perceived trade imbalances.”

Scott Gallacher, Director at Rowley Turton said, “The Bank of England is far more likely to err on the side of caution. Though Trump’s tariffs may be wreaking havoc on markets globally, UK wage growth is still strong so I suspect they’ll sit on the fence in May. A ‘wait and see’ approach feels more likely than a bold cut. Despite Liberation Day, the Bank of England may keep its powder dry for another day.”

Rob Mansfield, Independent Financial Advisor at Rootes Wealth Management added, “Markets have been hankering for rate cuts for months but is it the right answer? Trump’s tariffs have thrown everything up in the air. We have seen violent drops in stock markets but asset prices and the economy are not the same thing. The Bank’s mission is to contain inflation. The tariffs are likely to be inflationary and so a rate cut could see inflation flare up. The short-sighted and easy thing to do is cut rates, but being cautious and riding this mess out could be the answer.”

Tony Redondo, Founder at Cosmos Currency Exchange said, “Markets see an 86% chance of a Bank of England rate cut in May, up from 50%, as Trump’s tariffs tank stocks and stoke 60% recession odds for 2025.

“UK growth expectations being halved to 0.75% and current gilt yields — the 2-year is at 3.84% — definitely scream out for easing and three cuts are expected this year. However, inflation, forecast at 3.75% by Q3 2025, nearly double the 2% target, could freeze the Bank of England like a rabbit in the headlights.

“Bailey’s “gradual” stance and March’s 8-1 vote to hold at 4.5% signal caution. Pill’s inflation warnings also linger. The markets might be getting ahead of themselves. The Bank of England are infamous for always being behind the curve. I fear May will be no exception. The result could then be Threadneedle Street slashing harder later if growth dives.”

Harry Mills, Director at Oku Markets added, “My view that the Bank of England should cut interest rates has only strengthened from last month, when I said the BoE’s Monetary Policy Committee categorically should cut and get on with it.

“April brought about tax rises and minimum wage increases that may well be inflationary, but with anaemic growth and rapidly rising global recession fears, businesses need to see more accommodative monetary policy from Threadneedle Street. Inflation eased slightly in February after a spike in January; the path lower for inflation was always going to be bumpy, but I bet most would sooner trade lower interest rates for slightly above-target inflation.”