30 July 2025: The IMF calls for the BoE to cut rates

The International Monetary Fund has raised its prediction for global growth in 2025, despite the continued uncertainty created by President Trump’s trade policies.

Meanwhile, the UK economy is predicted to grow by 1.2% this year and 1.4% in 2026. This is unchanged from the previous forecast, which was published in May.

Focusing on the UK economy, the IMF said that it believes the base rate of interest should be cut twice more this year.

It went on to say that the Bank of England should cut interest rates twice more, or by at least fifty basis points, this year. The Fund urged Andrew Bailey and his colleagues on the MPC to keep lowering borrowing costs from the current level of 4.25pc against the backdrop of an economy that is still reeling from Rachel Reeves’s record tax raid.

It also warned that mounting debts and uncertainty about Donald Trump’s trade policies risked triggering renewed turmoil in financial markets, even as it upgraded its global growth forecasts.

While tariffs are lower than those Mr Trump threatened on “liberation day” on April 2, the IMF said huge uncertainty remained about the future of global trade policy.

“Risks are tilted to the downside,” it said in an update of its world economic outlook. “Larger fiscal deficits or increased risk aversion could raise long-term interest rates and tighten global financial conditions.

The Chancellor made her usual attempt to “cherry-pick” any good news from the report, while choosing to ignore any inferred criticism of her policies. She said the IMF forecasts “show that the UK remains the fastest growing European economy in the G7, despite the global economic challenges we are facing”.

The global economy is expected to grow 3pc this year and 3.1pc in 2026, helped by easing trade tensions.

The IMF said it expected the pace of rate cuts globally to be slower than it did just three months ago, with the Bank of England expected to cut “around twice more this year after pausing to assess incoming data”.

The Bank has already cut rates twice this year to 4.25%. Investors are only fully pricing in one more reduction to 4% in August. However, concerns about the health of the economy could prompt more action.

The pound lost further ground yesterday as the dollar continued its recent bout of strength. It fell to a low of 1.3307 but managed to rally late in the day, closing at 1.3342.

The latest meeting of the Federal Open Market Committee will end later today with interest rates left unchanged as they have for the entire year so far.

President Trump’s almost constant hectoring of Fed Chair Jerome Powell in which he has resorted to almost every method that is open to him, including threatening to remove Powell from office has had no effect and Powell remained sanguine and unmoved about his performance in driving the economy forward using the blunt instrument of monetary policy to balance growth and price stability.

This week was expected to see Trump’s tariff policy come to a head, with Friday being the deadline he had set for agreements to be reached. However, there is still a great deal of work to be done to achieve that target. Trump appears to have moved on to deal with the developing famine crisis in Gaza and the reluctance of Russian Premier Vladimir Putin to agree to a ceasefire in Ukraine.

With the Fed’s benchmark rate holding at a target range of 4.25% to 4.5% since December, the business world is looking for any clue that officials are moving toward a rate reduction in the Autumn.

Fed Chair Jerome Powell could face dissent from one or more colleagues, arguing it’s time for the central bank to provide more support to a slowing labour market. Meanwhile, Trump’s allies have been trying to stir up a scandal over the cost of the Fed’s headquarters renovation project to put pressure on Powell, which he has stoically ignored.

Inflation data according to Personal Consumption Expenditures will be published today, and with the latest Employment report due on Friday, the FOMC has plenty of data to chew over, even though the likely outcome is for no change this month.

Two Fed Governors, Michelle Bowman and Christopher Waller, both Trump appointees, will continue to agitate for a rate cut but will have to be satisfied with the likelihood of a cut at September’s meeting.

The Fed, led by Powell and ably assisted by Goolsbee, Kashkari and Kugler, among others, has been encouraged by a generally buoyant jobs market, despite several doom-laden predictions, and inflation data, which, while not feeling likely to fall to the 2% target, has reacted well to several shocks this year.

The American bombing of Iran’s nuclear facilities was clearly very well targeted to make barely a ripple in oil prices.

The “bones” of an agreement between the U.S. and EU have seen the dollar and Euro move in opposite directions this week, as the single currency has resumed its long and well-worn path lower.

The dollar index climbed to a high of 99.14 yesterday, but it ran into some of the remaining sales orders and closed at 98.92.

The next month will see an increase in volatility as G7 monetary policy is set to reach a watershed with the ECB, BoE and Fed all contemplating rate cuts, although there has been a shift in expectations for the ECB given the distance rates have fallen over the past year.

This week’s output data for individual members of the European Union has shown that Spain remains the shining light of productivity and economic output.

The Spanish economy is continuing on a strong growth path despite global uncertainties, although it is likely that Spain is less affected than Germany, France and Italy among its fellow EU members.

Spanish GDP grew by 0.7% in the period in Q2, and 2.8% year-on-year. The difference so far in 2025 is that the Spanish economy is not rising out of a contraction, which has been seen in recent years. It is experiencing a solid expansion of its economy.

Meanwhile, the German Chancellor and French Prime Minister expressed their dismay at the trade agreement that has been reached between Brussels and Washington.

The European Union’s trade deal with the United States is “submission” to U.S. President Donald Trump and marks a “dark day” in the history of the bloc, French Prime Minister François Bayrou said on Monday.

Trump announced a trade deal between the U.S. and the EU on Sunday after meeting with European Commission chief Ursula von der Leyen in Scotland.

Bayrou took to social media to criticise the deal, which would see an across the board 15% tariff on most goods from Europe.

The von der Leyen Trump Agreement is a dark day when an alliance of free peoples, united to affirm their values and defend their interests, resolves to submission,” Bayrou posted in French on the social media platform X.

Meanwhile, German Chancellor Friedrich Merz echoed Bayrou’s sentiment, telling reporters that he was not satisfied with the result of trade talks with the United States, but "more simply wasn't achievable" and added the German economy would suffer "significant" damage due to the agreed tariffs.

The trade deal announced on Sunday imposes a 15% import tariff on most EU goods, lower than the 30% once threatened by U.S. President Donald Trump but well above initial hopes of a zero-for-zero agreement.

The rate almost halves the existing tariff rate on Europe's auto sector, a cornerstone of the German economy, from 27.5%, Merz pointed out.

"But I am fully aware that the tariffs that remain, particularly the 15% versus 0% for imports into the EU, pose a serious burden for Germany’s export-oriented economy," he told a press conference in Berlin.

"I am not satisfied with this result in the sense of 'This is good.' But I do say that, given the starting point we had with the United States, more simply wasn’t achievable," he said.

The German Chancellor thanked the European Commission for its "tireless negotiations" with its U.S. counterparts, with involvement in particular of the German, French, and Italian governments.

The Euro has reacted poorly to the details of the agreement, as traders reversed the sentiment they showed in April when the original details of tariffs were published.

The fall in the value of the Euro may well prove the ECB correct in pausing its cycle of interest rate cuts, as it remains to be seen if there will be any effect on inflation.

The common currency fell to a low of 1.1518 and closed at 1.1542 as it looks to threaten medium-term support at 1.1470.

Have a great day!