The Bank of England is expected to cut interest rates for the second time this year today despite impending inflationary pressures from Donald Trump’s victory in the US election and the tax-raising Budget.
Policymakers are expected to reduce the Bank Rate from 5pc to 4.75pc, having cut borrowing costs for the first time in four years in August before leaving them unchanged in September.
The cut comes as inflation fell to 1.7pc in September, which was the lowest level since April 2021.
However, Donald Trump’s election as the next US president raises the prospect of tariffs impacting UK-US trade after the Republican pledged to ramp up levies on imports.
Deutsche Bank analyst Jim Reid said “higher tariffs mean that inflationary pressures will rise”.
Inflation was already expected to increase in the coming months after Chancellor Rachel Reeves announced almost £70bn of extra annual spending in the Budget, funded by tax rises and additional borrowing.
The Office for Budget Responsibility said inflation is forecast to average 2.5pc this year and 2.6pc next year before coming down, assuming “the Bank of England responds” to help bring it to the target rate.
James Smith, developed market economist for ING, said: “The Budget won’t change the Bank’s decision to cut rates again this week.
“But it does question our long-held view that rate cuts will speed up from now on.”
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