A strong warning has been issued to the world’s central banks: be “very cautious” about cutting interest rates, as hidden risks lurk beneath the surface of a surprisingly resilient economy. The advice comes as part of a major global economic report that, while upgrading 2025 growth to 3.2%, stresses that the outlook remains “dim.”
The recommendation for “cautious easing” is directed specifically at the Bank of England, but the logic applies globally. The report highlights the UK’s persistent inflation—forecast to be the highest in the G7—as a key reason to delay rate cuts. With strong wage growth and rising public expectations, the fear is that easing policy too soon could entrench high prices.
The report argues that the entire global economy is facing hidden risks. The full, negative impact of US trade tariffs on business investment has been delayed and is still to come. This means that while the economy looks healthy now, a significant headwind is just over the horizon.
Another hidden risk is the potential for a sharp “correction” in “stretched” stock markets. The report warns that the current AI-fueled rally is fragile, and a sudden downturn could cause a “sharp” fall in investment, pulling the rug out from under the economy.
Restrictive immigration policies are also flagged as a slow-burning fuse that will eventually lead to lower growth and higher inflation. Given this array of delayed and hidden threats, the report’s advice to central banks is to prioritize stability and not be tempted by the deceptively positive headline growth numbers.
