IMF forecasts three more Bank of England rate cuts this year - what it means for your money

The could announce another three this year, a top body has predicted, as it slashed the country’s growth forecasts in the wake of ’s global trade war.

The warned the UK was likely to suffer a spike in inflation this year, fuelled by higher energy and water bills, and average 3.1% this year. However, it added that the impact would “fade”. At the same time, it forecast the economy could be among those hit hard by President’s Trump import tariff dispute. The IMF now expects the UK economy to grow by just 1.1% this year, compared with its previously forecast 1.6%, then rise by 1.4% in 2026, down from its last estimate of 1.5%.

The big downgrade is a blow to the government given the UK escaped the stinging tariffs originally by US on global imports. However, levies of 10% still apply, rising to 25% on British-made cars and steel. A sharp slowdown would pile pressure on the Bank of England to cut its base rate from the current 4.5% in a bid to boost spending by households and businesses. The IMF says the Bank could afford three rate cuts this year, taking it down to 3.75%. Pierre-Olivier Gourinchas, the IMF’s chief economist, said: “That seems appropriate given that some of this uptick in inflation we expect to be relatively transitory.” He added that the Bank’s base rate was likely to ultimately settle around 3%.

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Any such drop would be a major boost to mortgage borrowers coming off cheap fixed rate deals and needing to remortgage, and those on tracker and discounted home loans. Lenders have already begun to reduce rates in anticipation of further cuts, with some two-year fixed deals now on offer for under 4%. The Nationwide building society and First Direct joined in the mini price war yesterday, with all eyes on the Bank’s next vote on May 8.

President Trump has been slammed after appearing to put pressure on Jerome Powell, the chair of the Federal Reserve, America’s central bank, to lower interest rates. In another extraordinary post on social media post, Trump said: “There can be a SLOWING of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW.” Trillions of dollars were wiped off US stock markets on Monday after investors were spooked, with experts saying it undermined the bank’s all-important independence on monetary policy.

It came as the IMF slashed its forecasts for the global economy amid President Trump’s trade war. The Washington-based body now predicts growth of 2.8% this year and 3% next - wiping a combined 0.8 percentage points off its January predictions. While avoiding a recession, it warned: “The global economic system under which most countries have operated for the last 80 years is being reset, ushering the world into a new era.”

Rachel Reeves, who is flying to Washington for the IMF’s spring meeting, seized on its upgrading of the UK’s growth forecasts - by 0.1% - for 2028 and 2029. The Chancellor will also hold crucial talks with the US Treasury Secretary Scott Bessant as she makes the case for open trade.

Downing Street is hoping to secure a new deal with the White House to ease the pain on UK industries hit by the new levies.
But Ms Reeves told The Mirror last week any deal must be in the UK’s national interest. She said: “We’re not going to sign any old deal, but to secure British jobs and British industry, that’s the message I’ll be taking to Washington.”

Last night as she headed to the US capital, Ms Reeves added: “The world has changed and we are in a new era of global trade. I am in no doubt that the imposition of tariffs will have a profound impact on the global economy and the economy at home. This changing world is unsettling for families who are worried about the cost of living and businesses concerned about what tariffs will means for them.” But she added: “Our task as a Government is not to be knocked off course or to take rash action which risks undermining people’s security. Instead, we must rise to meet the moment and I will always act to defend British interests as part of our plan for change.”

In its latest report, the IMF said President Trump’s original sky-high tariff policy - before his 90 day “pause” for most countries - took levies beyond those seen in the Great Depression. “If sustained, this abrupt increase in tariffs and attendant uncertainty will significantly slow global growth,” it warned.

But in a blow to President Trump, the IMF warned the US would be among the countries hard hit by the ongoing uncertainty and ramping-up of tit-for-tat tariffs with China. It slashed its forecast for the US economy this year by 0.9 percentage points, to 1.8%, with the impact of tariffs accounting for nearly half of the downgrade. Crucially, it also raised our US inflation forecast by about one percentage point.

A Bank of England policymaker yesterday predicted US trade tariffs were more likely to push down on UK inflation than up, but that there are risks on both sides. Megan Greene told Bloomberg: “The tariffs represent more of a disinflationary risk than an inflationary risk.” However, she added: “There’s a tonne of uncertainty around this, but there are both inflationary and disinflationary forces.”

Comment by Graham Hiscott, Head of Business

Loose cannon Donald Trump branding America’s top central banker a “loser” is up there among his most jaw-dropping outbursts.

But, like with many things in the weird world of Trump, there is method to his madness - even if he has crossed yet another red line, this time the Federal Reserve’s vital independence. Trump reckons higher rates are a drag in the US economy.

Yet expect to hear growing calls - hopefully in more measures tones - for the Bank of England to cut rates to boost our flagging economy. The IMF upped the ante by suggesting the Bank, under Governor Andrew Bailey, could afford another three rate cuts this year.

The balancing act for the Bank - whose job it is get inflation back to 2% - is whether the spike in living costs really is temporary against the wider need for it to do its part to stimulate growth. The winners would be the millions of borrowers - mortgage otherwise - who will benefit from lower outgoings. The losers - to use Trump’s language - will be savers who can expect most paltry returns in future.