The Bank of England will cut interest rates several times this year down to 3.25%, a major US bank has predicted.

Morgan Stanley also says the UK interest rate will go as low as 2.75% in the first half of next year, and then ultimately down to 2%.

In March, the Bank of England held its base rate at 4.5%, a month after cutting it by 0.25%.

But US President Donald Trump’s tariff war will hit UK growth forcing the Bank of England to reduce the base interest rate, Morgan Stanley forecasts.

Cut next week

Starting with a cut from 4.5% to 4.25% next week, the Bank will introduce a series of reductions up to November, the American banking giant says.

Bruna Skarica, Chief UK Economist at Morgan Stanley, expects the terms “gradual and careful” to be removed from the Bank of England’s guidance on interest rates, the Daily Telegraph reports.

She said the Bank may make 0.5% cuts in June or August.

Boosted hopes

Inflation figures showing a surprise fall in March to 2.8% boosted hopes of further cuts in interest rates.

A majority of 8–1 of the Bank’s Monetary Policy Committee (MPC), including Governor Andrew Bailey, voted to maintain the rate.

However, if inflation continues to fall, there will be more encouragement for the Bank to reduce the base rate further.

The Bank has set an inflation target of 2% as part of its strategy to steer the economy in the right direction, and much will depend on April’s inflation rate which will be announced on 21 May.