Could Bank of England do a 'double' interest rate cut in May? Experts have their say (2025)

The case for a bumper cut to UK interest rates next month, which would ultimately lead to cheaper mortgages, has “grown significantly”, economists have told The i Paper.

Financial traders have been expecting more interest rate cuts this year ever since Donald Trump unveiled plans to impose reciprocal tariffs on imports into the US, posing a threat to economies across the world.

Any cuts would be a boost for the Government’s promise to raise living standards, which has been under threat due to the recent economic turmoil.

Until recently, the expectation has widely been that the Bank of England would cut interest rates in 0.25 percentage point increments.

However, some economists are now arguing that rates should be slashed by double the amount next month to limit damage to the economy.

This week, ex-Bank of England deputy governor Sir Charles Bean said that rates could be cut by 0.50 percentage points at the next meeting in May, and other economists have said the case for this is increasing.

Bean told The i Paper that a cut of 0.5 percentage points would not “be hard to justify”.

Thomas Pugh, economist at RSM UK, said: “The case for a double rate cut is growing: growth this year and next year will be materially impacted and commodity prices have dropped sharply. This will take some of the sting out of the coming rises in inflation and give the Bank more room to cut rates.”

Charles Goodhart, a former rate-setter at the Bank, told The i Paper: “I agree that a cut of 0.5 percentage points at the next meeting would be a good idea.”

But he also said it would be difficult for the Bank to square a bumper cut to interest rates with the fact that inflation would be far above the target level of 2 per cent.

Other economists have also said a cut this large seems unlikely too, with many predicting the Bank will cut two or three more times this year in small increments, taking rates to 4 per cent or 3.75 per cent.

Sam Miley, forecasting lead at the Centre for Economics and Business Research, said: “We think it’s unlikely that the Bank will implement such a large cut in May. Our main rationale is that domestic inflationary pressures are too strong, particularly in the services sector.”

Rachel Reeves has claimed that the reason the Bank has already cut rates three times since the general election is her focus on restoring stability to the UK economy.

Before the election, Sir Keir Starmer promised to bring down the cost of borrowing which had turned some middle-class voters against the Conservatives.

The last time the Bank cut interest rates by 0.5 percentage points was just before the Covid lockdown, although two members of its rate-setting committee did vote for a reduction of this size back in February.

It reduced rates from 0.75 to 0.25 per cent in March 2020 and then followed this up with a cut of 0.1 percentage points later that month at an emergency meeting.

If rates were reduced to 4 per cent, it would probably come as a surprise to financial markets, and could lead to mortgage costs coming further, experts have said.

Home loan rates have already dropped in recent days on the expectation that the Bank will cut rates further this year – traders are pricing in three more cuts in 2025 – but any indication that drops will happen faster would likely lead to more reductions for homeowners and buyers.

Nick Mendes of John Charcol brokers said: “If we were to see a 0.5 percentage point cut in May, it would likely catch markets by surprise and could lead to a meaningful drop in swaps and mortgage rates. This could provide a helpful tail-wind for further easing.

“However, any move would need to be weighed carefully against the Governor’s messaging and the Bank’s broader economic outlook. Market expectations can shift quickly, but forward guidance will remain central to how the path forward evolves.”

Could rates drop to 4 per cent in May? What experts say

Charles Goodhart, former member of the Bank’s Monetary Policy Committee (MPC): “I agree that a cut of 0.5 percentage points at the next meeting would be a good idea.

“The problem is, of course, that the UK April inflation figures are likely to be bad, with quite a large jump, for the reasons that everyone knows. But that is past history in the light of the economic chaos being imposed by Trump. The effects of this are already visible in the sharp fall in oil prices.

“Looking forward, the decline in both demand domestically and import prices are likely to be such as to require an immediate cut in interest rates to forestall these effects. But it does mean that the MPC would have to explain that it was looking forward, as it should be, and thereby feeling able to put the immediate rise in UK inflation to one side.”

Sir Charles Bean, ex-deputy governor at the Bank: “I would expect [the MPC] at least to entertain the idea [of a 0.5 percentage point cut]. And I don’t think it would be hard to justify.

“This is a combination of an adverse demand shock with a possible beneficial terms of trade shock as countries like China seek alternative markets.

“I have been at the hawkish end of MPC in recent times, but whatever your view about the appropriate path for bank rate before the tariff war, recent developments must surely lower it.”

Thomas Pugh, economist at RSM UK: “A month away might as well be a year away at the minute – we could be operating in a very different global environment by the time we get to the May meeting. If we continue down the current path with quite extreme moves in the gilt market we can expect calls for the Bank to intervene. I’m not saying they will but those calls will start coming.

“Second – assuming this isn’t rolled back – the case for a double rate cut is growing. Growth this year and next will be materially impacted and commodity prices have dropped sharply – this will take some of the sting out of the coming rises in inflation and give the Bank more room to cut rates. We already had two votes for 50bps [basis points] at the meeting before last and it’s hard to argue that conditions have improved since then.

“Third, I think we’re more likely to get consecutive rate cuts than a bumper one in May. But the case for front-loading cuts is clear, but clearly the case for a 0.5 percentage point cut has grown significantly.”

Sam Miley, forecasting lead at the Centre for Economics and Business Research: “We think it’s unlikely that the Bank will implement such a large cut in May. Our main rationale is that domestic inflationary pressures are too strong, particularly in the services sector, and making this policy change would risk adding to these.

“Our most recent forecast shows a much more gradual path [of rate reductions]. We had been expecting just one more cut by the end of the year recently. However, this doesn’t account for the volatility observed this month, which may affect this forecast at our next review period, due at the end of the month.”

Elliott Laidman Doak, senior UK economist at Pantheon Macroeconomics: “We don’t think a 0.5 percentage point cut is very likely, though I do get the rationale. The MPC will have a bit more clarity than now on where we sit with tariffs, and the soft data will be pretty awful in the run-up to that I would guess.

“But 0.5 percentage points is pretty extreme – they didn’t cut by this much immediately after Brexit despite inflation being far lower than now. We may also get some help from global stimulus.

“Our previous call was to end 2025 at 4 per cent interest rates, which we stick to for now but if we change it will likely be to add in another cut in June, so 0.25 percentage points back-to-back.”

Sanjay Raja, chief UK economist at Deutsche Bank Research: “While we remain attuned to the risk of larger rate cuts, given the uncertainty surrounding the global economy and the prospect of more tightening in credit and financial conditions, we think the bar for ‘forceful’ rate cuts is still high (even if we are likely to see one or two votes for a 0.5 percentage point rate cut in May).

“For now, our basecase remains: we see four more rate cuts this year, with the MPC more likely to stick to quarter point changes given the rise in headline CPI [Consumer Prices Index] alongside the rather uncomfortable rise in household and business inflation expectations – something the MPC itself was concerned with in its March policy deliberations.”