Reeves to Welcome Rate Cut as UK Struggles to Boost Growth

Chancellor Rachel Reeves is set to welcome the Bank of England’s anticipated interest rate cut this Thursday, as the UK government struggles to boost economic growth. A quarter-point reduction to 4% is widely expected, marking the fifth cut since last August, a move prompted by rising unemployment and the economic fallout from Donald Trump’s fresh tariffs. Financial markets are pricing in an over 80% chance of this August rate reduction.
The expected rate cut aims to provide relief to households through lower mortgage rates and support cash-strapped businesses, aligning with the Chancellor’s economic objectives. However, the broader context reveals a difficult situation for the UK, with the government trying to stimulate growth while limiting Whitehall spending before the autumn budget. The economy shrank in May by 0.1% and in April by 0.3%, a contraction largely attributed by economists to the uncertainty stemming from Trump’s tariffs and the recent implementation of new business taxes.
Further evidence of economic fragility comes from the labor market, where job vacancies have fallen below pre-pandemic levels and the unemployment rate has risen to 4.7% in the three months to May, marking a four-year high. These figures underline the urgency of supportive monetary policy.
Despite a UK-specific trade deal, President Trump’s broader announcement of substantial tariffs on other trading partners is creating headwinds for global trade and, consequently, for UK economic growth. The International Monetary Fund’s subdued forecast, projecting minimal UK expansion for the latter half of the year, adds to the cautious outlook. The Bank of England’s updated forecasts, due on Thursday, are expected to reinforce these concerns, potentially indicating an imminent period of stagflation – a challenging scenario of slow growth combined with stubbornly high inflation, which currently sits at 3.6% CPI.