Although our base case remains that the hit to UK GDP growth from US tariffs will be relatively small, the downside risks to our below consensus forecast for GDP growth of 0.8% in 2025 have increased. And the growing likelihood that the influence of US tariffs proves to be disinflationary for the UK supports our view that CPI inflation will fall back to the 2.0% target in 2027. Lingering near-term inflation risks may prevent very fast interest rate cuts. But rates may eventually fall from 4.50% now to below our forecast of 3.50%.
We’ll be discussing the outlook for Bank of England, Fed and ECB policy in a 20-minute online Drop-In at 2pm BST on Thursday 8th May. (Register here.)
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