Eyes Turning To Interest Rates As Tariff War Twists and Turns Making Upward Inflation Likely

13th April 2025

With the tariff situation changing fast as he two major economic powers fight it out damaging inflation is gaining ground with prices rising in some goods. Despite downward and welcome pressure on oil prices for transport many other areas will see prices rising as tariffs rises hit home.

Attention is turning to interest rates with many wanting a decrease to counteract the inevitable inflation.

A significant hit to economic growth is now expected in Europe after Donald Trump's decision to pause some of his "reciprocal tariffs" for 90 days. It is increasingly likely that the European Central Bank will cut interest rates for a seventh time next week.

Across Europe companies and consumers are becoming less confident. The euro hit a three-year high on Friday. A stronger currency makes imports less expensive, putting downward pressure on consumer prices.

The Bank of England interest rate is currently 4.5% and many analysts expect a series of reductions in 2025 starting at its next meeting on 8 May 2025. UK interest rates are expected to decrease further in 2025. Analysts predict up to four rate cuts this year, potentially bringing the Bank of England's base rate down from 4.5% to 3.5%.

Already some rates for fixed rate mortgages have some down anticipating rate cuts this year.

The pound has been on an upward trajectory against the US dollar, its performance against the euro has been more subdued, highlighting the varying dynamics within global currency markets.

Sterling rebounded impressively from its January lows, appreciating by roughly 8% as it recovered from earlier declines. This strength was largely driven by a notably weaker US dollar,. following factors like sweeping US import tariffs and concerns over US economic policy.

In contrast, although the pound has made gains against the dollar, it has experienced a slight decline against the euro. Data indicates that since the start of the year, sterling has fallen by about 1.2% relative to the euro. This more modest performance reflects a combination of a strengthening euro and differing shifts in investor sentiment between the two currencies