Bank of England to cut rates gradually as the world braces for Trump's tariffs: Reuters poll

By Shaloo Shrivastava

BENGALURU (Reuters) - The Bank of England will keep Bank Rate on hold in December as global inflation worries resurface, according to a Reuters poll of economists who were split on the impact U.S. President-elect Donald Trump's proposed tariffs would have on the UK economy.

Trump's proposed tariffs, a 10% levy on imports from all foreign countries and 60% on imports from China, was expected to slow global growth and reignite inflationary pressures, limiting room for most central banks to ease policy.

Nearly 90% of economists, or 22 of 25, who answered an additional question in the Nov. 13-19 poll said the proposed tariffs would be implemented early next year.

However, they were split on the impact it would have on the UK economy over the next two to three years. While 11 of 21 said it would be insignificant, the rest said significant.

Those findings contrasted with a Reuters survey on the euro zone economy, where a majority of economists, 34 of 39, said Trump's proposed tariffs would have a significant impact.

"A universal U.S. tariff could significantly impact the global economy...although the UK has a goods trade deficit with the U.S. and may not face the most severe tariffs," said Stefan Koopman, senior market economist at Rabobank.

SLOW AND STEADY FOR BOE

Starting its easing cycle in August, the BoE has taken Bank Rate from a 16-year high of 5.25% to 4.75% with two cuts of 25 basis points.

All 66 economists surveyed expected no change from the BoE in December. Poll medians showed rates falling 25 basis points every quarter next year, dropping to 3.75% by end-2025.

Every respondent who expressed a view predicted the next cut would come early next year.

Of 58 economists who provided forecasts until end-2025, 50% or 29 of 58, predicted Bank Rate to fall 100 basis points next year. While 19 said 125 bps or more, 10 said by 75 bps or less.

Among 15 Gilt-Edged Market Makers, five each predicted 125 or 100 basis points of cuts, three said 75 bps while two said 150 bps.

"The Autumn Budget was notably more expansionary than anticipated – raising the prospect of stronger demand in the near term – while the increase in employer National Insurance Contributions is likely to add to inflationary pressures," noted economists at Goldman Sachs.

"We look for wage growth to fall back notably given that headline inflation is now close to target."

Poll medians showed inflation would average 2.5% in 2024, 2.3% in 2025 and 2.1% in 2026, broadly unchanged from last month's survey.

The UK economy was forecast to grow 0.9% this year and 1.4% in 2025 and 2026, close to the BoE's own predictions. Earlier in November the BoE cut its growth forecast for this year to 1.0% from 1.25% but raised its 2025 forecast to 1.5% from 1.0%.

(Other stories from the Reuters global economic poll)

(Reporting by Shaloo Shrivastava; Polling by Indradip Ghosh and Vijayalakshmi Srinivasan; Editing by Jonathan Cable, Hari Kishan and Christina Fincher)