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(Bloomberg) — The Bank of England is likely to turn less dovish on Thursday as officials start to fret about the fallout from Donald Trump’s tariff wars and a renewed bout of domestic inflation.

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Markets and economists expect the Monetary Policy Committee to leave the benchmark interest rate on hold at 4.5% and reiterate a cautious approach to further cuts. The BOE will announce the decision at 12 p.m. in London.

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Economists polled by Bloomberg see seven members voting for no change after signs that some doves have become more wary since early February when the BOE reduced rates for a third time. The remaining two are expected to back a quarter-point cut, the fewest since September, with no repeat of the half-point bids that surprised markets last month.

Vote split

Governor Andrew Bailey played down the vote split as a communication tool in February after Catherine Mann’s shock switch from being an ultra-hawk to backing a bumper 50 basis-point reduction. However, it could still point to momentum shifting on the committee in a more hawkish direction.

Any hopes that the BOE might step up its once-a-quarter cutting pace were dashed in recent comments from Deputy Governor Dave Ramsden and external policymaker Alan Taylor, both of whom have backed reductions at the last three meetings. Others including Chief Economist Huw Pill and Megan Greene have also urged caution. Mann and long-standing dove Swati Dhingra, who also called for half a point off rates in February, are seen as most likely to continue voting to ease. 

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Guidance

The MPC is likely to stick to guidance that was updated in February when it told investors to expect “gradual and careful” rate cuts. 

Rate-setters added “careful” to the language to reflect the uncertainty created by Trump’s aggressive trade policies, which threaten both slower growth and higher inflation. Bailey has said this wording doesn’t necessarily mean slower reductions in borrowing costs, arguing that the “risks are two-sided.”

The minutes are also expected to underscore the BOE’s meeting-by-meeting approach and differences on the committee over whether the UK economy’s weakness is driven by tepid demand or subdued supply.

Growth and inflation

While the BOE’s next forecasts are not due until the May meeting, it could provide some early tweaks to projections made last month.

The news on growth and inflation has been mixed since the February decision. The economy unexpectedly shrank 0.1% in January. However, a strong 0.4% expansion in December boosted the level of GDP going into 2025, meaning the BOE’s prediction of 0.1% growth for the first quarter may be too pessimistic.

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Inflation in January, at 3%, was above where the central bank had expected and has further to run with some economists forecasting price increases above 4% by the summer — higher than the BOE currently predicts.

While this is being driven by “temporary” factors such as energy and food, some officials including Bailey are not ruling out second-round effects on wages and prices. A sharp pickup in inflation expectations last month will have done nothing to assuage those fears. On the other hand, a tumble in gas prices on markets in recent weeks will ease some of the upward pressure on inflation. 

Trump effect

The BOE’s plan to gradually ease policy remains at the mercy of Trump’s quest to upend global trade and geopolitics.

In February, the MPC held off giving any strong judgment on how tariff skirmishes would affect inflation and growth. But with Trump fast delivering on his promises to reset US trade relations, the BOE may be more willing to comment.   

Earlier this month Bailey said the impact on inflation “can be ambiguous” but warned that the risks to the UK economy “are substantial.” The OECD this week warned of slower growth and higher inflation across developed economies that could worsen notably if trade tensions escalate.

Rate bets

Heading into Thursday’s meeting, investors were largely sticking to their bets on two more quarter-point rate cuts this year. When those cuts arrive is less certain.

Confidence in the next move being in May has weakened on financial markets. Investors were fully pricing in a quarter-point reduction after Mann’s aggressive push in February. They now see a 70% chance, with the possibility of a longer pause between moves beyond May. 

—With assistance from Harumi Ichikura.

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