The director of Institute for Fiscal Studies (IFS) has warned market instability caused by President Trump’s tariffs could send the UK into recession, prompting calls for the Bank of England to move faster and go further with interest rate cuts.
“Unless something happens, we are certainly in for a period of much slower growth than we were expecting, quite possibly a recession as a result of the actions of one man,” Paul Johnson told Times Radio on Tuesday.
It is widely reported that financial markets expect as many as three interest rate cuts this year, potentially bringing interest rates down to below 4%. But in the wake of Trump’s ‘Liberation Day’ announcements, there are calls for the Bank of England to move more quickly.
Former deputy governor of the Bank of England and chief economist of the Office for Budget Responsibility (OBR), Charlie Bean, has said interest rates need to be cut but ‘at least half a percentage point’ to 4% in next month’s announcement in response to the tariffs. Uncertainty in the short term would delay investment and hit consumer spending, he added.
Lenders have responded by announcing their intentions to cut mortgage rates. As reported by the BBC, TSB said it will reduce two-year fixed rate mortgage by up to 0.25% and Mpowered Mortgages reduced its rates across several products. Coventry Building Society also announced cuts over the weekend as inter bank lending rates have fallen.
Stuart Cheetham, CEO of MPowered Mortgages, told Property Industry Eye:
“Since Trump announced the “Liberation Day” tariffs we have seen a sharp fall in the swap rates which has enabled us to reduce our fixed rate mortgage rates.
“Whilst these tariffs could have a detrimental impact on the UK economy with increased prices putting extra strain on UK households, there is a silver lining for mortgage borrowers who will see rates come down over the coming week. As always, borrowers should seek independent financial advice before deciding on a mortgage deal.”
Although average rates remained unchanged on Tuesday, they are expected to drop by almost 2% to as little as 3.79% in the coming weeks.
