Interest Rate Cuts Won’t Save Britain

The Bank of England does what Trump wants from the Fed—alas.

President Trump leaves no doubt about his desire for lower interest rates. Well, someone is acting on that principle—in the United Kingdom, where the results offer a cautionary tale for Washington.

Bank of England Governor Andrew Bailey is cutting interest rates to try to rev up economic growth while letting inflation accelerate. (Reuters)

The Bank of England, Britain’s central bank, on Thursday reduced its short-term interest rate by one-quarter percentage point to 4%. This is the fifth quarter-point rate cut in a year, and it was controversial even on the Bank’s Monetary Policy Committee, which approved it by a vote of 5-4 on the second ballot.

Britain’s monetary authorities are worried about sluggish economic growth, and you can’t blame them. Unemployment of 4.7% is at a four-year high and climbing, and anxiety is mounting over the impact of President Trump’s tariff wars, despite the U.S.-U.K. deal in May.

While the central bank speaks gingerly about this, the economy has been walloped by destructive tax and regulatory policies from the Labour government led by Prime Minister Keir Starmer and Chancellor Rachel Reeves. That includes a hike in the employer portion of the payroll tax starting in April and an increase in the minimum wage, both of which are hurting business hiring.

Entrepreneurs and investors have good reasons to sit on the sidelines while Labour debates punitive new taxes on wealth and capital incomes to fill a hole in the public finances most recently estimated at £51 billion. It’s increasingly likely Mr. Starmer and Ms. Reeves will break their pre-election promise not to raise taxes on the middle class, because that’s the main source of revenue left to tap.

If you’re wondering how an interest-rate cut could fix any of these problems, you’ll be scratching your head for a while. Britain’s economy is seizing up because it’s too heavily taxed and regulated, not because borrowing costs are too high.

Meanwhile, there’s a real danger the BoE’s rate reductions will fan an inflation problem that never fully abated after the pandemic. The inflation rate fell close to the BoE’s 2% target for a brief spell last summer, after a peak of 11.1% in October 2022. But the rate is climbing again and stood at 3.6% in June. Officials warned Thursday they expect inflation to hit 4% in September.

BoE Governor Andrew Bailey is cutting interest rates to try to rev up economic growth while letting inflation accelerate. Sound familiar? That’s the policy formula Mr. Trump wants the Federal Reserve to adopt. This already is a recipe for political misery for Mr. Starmer and Ms. Reeves, whose approval ratings are plummeting as voters blame them—correctly—for Britain’s deepening malaise.

It’s best to assume American voters will be similarly savvy when asked to pass judgment on Mr. Trump’s economic record. The lesson from Britain to American leaders: Stop complaining about interest rates and focus on the tax, regulatory and trade policies that matter more to economic growth.