The Bank of England just did what everyone saw coming—cut rates by 25bps, bringing the benchmark down to 4.25%. It’s the fourth cut since August and, if you squint at the tea leaves in Bailey’s statements, it’s not the last. “Gradually, carefully downward,” he said. Translated: we’re easing, but pretending it’s brave policy rather than inevitable retreat.
Markets barely flinched. Pound sterling even gained—a reflex to tightening US-UK yield spreads, maybe. But this isn’t optimism. It’s confusion wearing a tie.
The Trade Deal that Wasn’t
Speaking of confusion, Trump’s long-rumored US-UK trade deal looks set to be announced. What’s actually in it? Not much. Think tariffs mostly staying, and a vague future focus on “cars, beef, and steel”—basically the economic equivalent of promising to eat healthy tomorrow. UK officials are whispering that the agreement is narrow in scope and largely symbolic.
Still, UK becomes the first to cut a deal under Trump’s second trade offensive, which might matter geopolitically more than economically. India’s off the table for now, thanks to Kashmir tensions, and China? It’s always about China.
Economic Theater, with Real Pain Behind the Curtain
Meanwhile, UK output price inflation eased to 3.5%, and wage growth slowed to 4.8%, expected to head toward 3.8% within a year. If that sounds like disinflation, it is. And if it sounds like stagflation, you’re not wrong either. Growth is stagnant, services PMI is sliding, and the BoE’s own forecast sees global trade policy uncertainty choking UK-weighted world GDP through the back half of 2025.
What’s worse? Public confidence in UK policy is “at an all-time low”, and even with easing, UK bond demand isn’t exactly roaring back. High rates weren’t attracting buyers; now falling rates aren’t inspiring much faith either.
In the Background: Bears, Breakouts, and Battle Skies
Stateside, the AAII sentiment survey just printed its 11th straight week with more bears than bulls, a record. And yet, retail sales excluding gas and autos rose 6.76% YoY in April. Jobless claims are tame, margin data is solid, and big tech is still flirting with breakouts. Yes, we’re late-cycle—but that cycle just keeps spinning.
Over in the East? China’s cozying up to Moscow, reaffirming “strategic cooperation” with Russia. Meanwhile, Pakistan and India reportedly engaged in an aerial skirmish involving 125 fighter jets—a not-so-gentle reminder that geopolitics hasn’t taken a vacation.
Bottom Line?
The BoE is cutting with one eye on growth and the other nervously twitching toward inflation and global volatility. Markets are rallying on dovish tones, but fundamentals still scream paralysis.
As Goldman’s Callahan put it: “Break-out, or not?” It’s the question on every chart, every terminal, and maybe every central banker’s mind.
Just don’t expect a straight answer.