Bank of England under pressure as IMF calls for more rate cuts amid economic uncertainty

The International Monetary Fund has urged the Bank of England to deliver two additional interest rate cuts this year in a bid to stimulate Britain’s faltering economy. As it stands, rates have already dropped twice in 2025, landing at 4.25 percent.

Despite these moves, the IMF has highlighted persistent vulnerabilities, attributing a sense of economic malaise to the aftermath of Chancellor Rachel Reeves’s record tax increases. The Fund argued that lowering the cost of borrowing further would help counteract the negative impact of higher taxes, which continue to weigh on employers and household incomes.

Warnings from the IMF did not stop at domestic policy concerns. The organisation flagged the risk of financial market turmoil fuelled by escalating debts and uncertainty surrounding Donald Trump’s approach to international trade policy. Even though tariffs implemented this year were not as severe as initially threatened, confusion over future trade measures is creating anxiety across global markets.

Current forecasts from the IMF suggest a modest upgrade for UK growth, with an expectation of 1.2 percent in 2025 and a steady 1.4 percent the following year. This positions the UK as the fastest growing economy in the G7, according to the Chancellor, yet concerns over business confidence and the sustainability of economic momentum remain front and centre.

The IMF’s report suggested that the pace of interest rate reductions across advanced economies will now be slower than previously anticipated. Investors appear to price in only one further cut from the Bank at its August meeting, down to 4 percent, though challenges facing the economy could prompt a more decisive response from policymakers.

Comments from Governor Andrew Bailey reinforced the delicate state of the British labour market. Bailey noted that businesses are responding to tax changes with hiring freezes, reduced working hours, and more reserved wage increases, factors which risk dampening consumer spending and confidence.

Amid these circumstances, speculation persists that the government could be forced into hard choices to support public services and restore fiscal balance. The IMF has floated options such as raising taxes further, revisiting the pension triple lock, or introducing charges for NHS care, each of which would represent a significant policy shift.

Looking abroad, the IMF sees less room for manoeuvre for the US Federal Reserve, even as inflation pressures appear set to persist. It anticipates that interest rates in both Britain and America will decline in the second half of 2025, albeit at different speeds. With global growth forecast to edge higher on the back of easing trade tensions, central bankers on both sides of the Atlantic face a delicate balancing act between stimulating growth and keeping inflation in check.