A cut to the Bank of England base rate is now ‘likely’ on 8 May following President Donald Trump’s tariffs announcement, mortgage experts have forecast.
The plans to introduce tariffs on exports to the US include a 10% tariff on goods into the US from the UK and 20% on those from the EU.
The Prime Minister Keir Starmer said last week this would have an economic impact on the UK and across the globe and already stock markets have plummeted.
Today the UK FTSE 100 fell to a one-year low just minutes after opening in response to the turmoil and as fears of a global recession heighten.
But whilst there is much unpredictability and uncertainty around how the situation will play out – there could be an unexpected benefit to borrowers in the UK.
Indeed, many mortgage experts are predicting the situation could prompt the Bank of England’s Monetary Policy Committee (MPC) to cut interest rates at their next meeting on 8 May.
The fallout from President Trump announcing his tariffs, which means export tax of up to 50% for some countries, will likely lead to a global economic slowdown.
But, swap rates – which mortgage lenders use to set their pricing – have also fallen since the announcement and this could impact mortgages.
Nicholas Mendes, mortgage technical manager at John Charcol, said that whilst a trade war was obviously negative for the global economy, there may be some ‘upsides’ for the UK.
He explained: “The self-inflicted harm to the US economy is likely to be far greater than any fallout we will experience here.”
He added: “As things stand, there does not appear to be much, if any, retaliation coming from the UK. That means inflationary pressure here should be limited, quite the opposite of what we are seeing in the US.
“In fact, increased competition from exporters unable to access the US market, along with falling oil and freight prices and a stronger pound against the dollar, could all help ease inflation. No doubt the government will be quick to take credit.
“With inflation expectations easing and a more uncertain economic outlook, a cut in the Bank Rate on 8 May now feels not just possible, but likely. More importantly, it suggests we may see a quicker pace of cuts in the months ahead.”
Mendes said he expected to see several lenders reduce mortgage rates this week.
“It would not be surprising to see several lenders reduce mortgage rates next week, and that could set the tone for further reductions throughout the year,” he said.
“The recent dip in property activity caused by the latest stamp duty changes may well be offset, as falling rates draw more buyers into the market, even though some may be feeling less secure about their jobs.”
Not all mortgage experts agreed with this. Justin Moy, managing director at EHF Mortgages was speaking last week through the Newspage Agency. He said: “Though it’s too early to see what the Bank of England will do at this stage, the new tariffs have the potential to worsen inflation, and even if we do negotiate a better deal, these worldwide tariffs may push prices higher.
“I suspect the MPC will adopt a ‘wait and see’ approach before any decisions on the base rate will be made.”
But Laith Khalaf, head of investment analysis at AJ Bell, has adjusted expectations about the number of interest rate cuts likely to take place this year.
“The market had been pricing in two interest rate cuts this year,” he said, “but in short order that has now been ratcheted up to three, which would take the base rate to 3.75% by the end of 2025 (based on LSEG data).
“Meanwhile the two year swap rate fell from 4% on 1 April to 3.7% at the end of last week, according to Bank of England data. The two year gilt yield has also fallen, from 4.2% to 3.9% since 1 April (source: LSEG).
“We may therefore see falling interest rates feeding into mortgage pricing before too long. Likewise the cash market may see fixed rates fading to reflect the new outlook for interest rates.”
