To stimulate growth during a looming Trump-induced global economic downturn, the Bank of England may have to slash the base rate – it has been claimed.

With a trade war already raging, stock markets around the globe have seen substantial falls and although there is relief that the UK is only facing a 10% tariff on the majority of its goods and services, economists are predicting it will still have a significant impact on the UK’s economy.

The 2008 financial crash and COVID have shown that one of the most effective means of boosting spending and encouraging domestic business investment during a crisis is to make borrowing cheaper.

More cuts

The money markets, which had already been factoring in two further reductions in the base rate in 2025, have now increased that number to three, which would see the base rate drop to 3.75% by the end of the year.

And it could go even lower. Former deputy governor and chief economist of the Office for Budget Responsibility (OBR), Charlie Bean, is urging the Bank of England’s Monetary Policy Committee to cut its base rate by 0.5% rather than 0.25% at its next meeting on May 8th.

It is not just the tariffs that are the problem, it is the huge uncertainty these actions have created.”

He told the Guardian: “It is not just the tariffs that are the problem, it is the huge uncertainty these actions have created, delaying buying and investment decisions by businesses and consumers.”

“In November 2008, the markets expected a 0.25 percentage point cut, or maybe a half a per cent. But we were talking to our agents in the regions, and they said business orders had fallen off a cliff. It was obviously a very serious situation. We surprised everyone with a cut of 1.5 percentage points. It was huge, and it needed to be.

“The tariff situation is not of the same magnitude, but this is a disinflationary shock and an event that the bank should react to, and react very strongly.”

Although Trump’s 90-day ’pause’ on tariffs has now restored some calm to the stock markets, the outlook remains unclear, as is the potential impact of a more focused trade war with China.

More than thought

Jeremy Cox, Head of Strategy at Coventry Building Society, told BBC’s Today programme: “The Monetary Policy Committee will reduce the base rate more than we thought a couple of weeks ago and, as a result, markets are already pricing that in, and we are able to pass on that lower interest cost to our mortgage borrowers.”

He warns, though, that the outlook for inflation and the base rate is “Very volatile and we don’t know if it is going to be long-term or whether the sheer amount of disruption will mean interest rates will rise.”

Other lenders are also cutting their rates. Barclays have just announced a raft of reductions to its fixed rates, with the best deals all now dropping below 4%.

And BTL lender Zephyr has announced it is reducing all its two-year fixed rates by 20 basis points (bps) and its five-year rates by 5 bps.