'Challenging and unpredictable' conditions to persist - BoE's Bailey
By Abigail Townsend
Date: Friday 09 May 2025
(Sharecast News) - The governor of the Bank of England warned on Friday that the current challenging and unpredictable global economic environment was set to continue.
In a speech to Iceland's Reykjavik Economic Conference, Andrew Bailey acknowledged that forecasting had become more difficult in recent years.
In particular, he said the central bank's models and analytical frameworks had been challenged by the "sheer scale and unpredictability" of the global shocks seen over the last five years, and warned: "We need no reminder that the global economic environment is likely to continue to be challenging - and less predictable - than it was in the past."
The BoE's Monetary Policy Committee cut interest rates by 25 basis points on Thursday, to 4.25%, the second cut this year and fourth in the current rate-reducing cycle.
Although the reduction was widely expected, analysts were surprised at how tight the five-four vote was. Two members voted for a bigger 50bps reduction, while two argued for rates being left on hold. Bailey voted for the 25bps cut.
Inflation currently stands at 2.6%, but UK growth is sluggish. The BoE is currently predicting growth of 1% in 2025 and 1.25% in 2026.
Global markets have also been upended by Donald Trump's sweeping tariff regime, unveiled on 2 April. Forecasters fear the US president's often erratically-imposed levies could see inflation start to climb once again, as prices rise, and depress growth worldwide.
The UK became the first country to sign a trade deal with the US on Thursday. Under the terms of the pact, the White House has agreed to cut punitive tariffs on steel and car imports, although the baseline 10% duty on most goods remains in place.
Bailey called the deal "good news", although noted the effective tariff rate would still be higher than it had been.
"I do think we need to bear that in mind," he said. "The impact of all this development on the trade front on the UK outlook is conditional not only on the UK trade agreement, but also what the rest of the world agrees."
Bailey separately told the BBC that the focus now should be on a rebuilding the UK's trade relationship with the European Union. The EU is Britain's largest trading partner.
Bailey said: "It would be beneficial, having a more open economy to trade with the EU. Because there has been a fall-off in goods trade with the EU over recent years.
"It is important we do everything we can to ensure that whatever decisions are taking on the Brexit front do not damage the long-term trade position.
"So I hope that we can use this to start to rebuild that relationship."
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