Copy link
twitter
facebook
whatsapp
email
Copy link
twitter
facebook
whatsapp
email
Copy link
twitter
facebook
whatsapp
email
Copy link
twitter
facebook
whatsapp
email
The Bank of England has warned that fears of another Rachel Reeves tax raid will weigh on growth well into 2026.
Andrew Bailey raised the prospect of an interest rate cut before Christmas to support the economy as policymakers blamed higher taxes for a stagnating jobs market.
The Monetary Policy Committee (MPC) that sets interest rates voted 5-4 to keep rates on hold at 4pc on Thursday. with the Bank’s governor casting the deciding vote.
Policymakers said households and businesses were already worried about the Budget on November 26, with the number of businesses describing uncertainty facing their businesses as “high” or “very high” now at a higher level than during the aftermath of Liz Truss’s mini-budget.
A survey of households and businesses conducted by the Bank described the economy as “flat”.
The poll added: “Increased uncertainty about the upcoming Autumn Budget means contacts do not expect demand to pick up until at least part way through 2026.”
Businesses were still dealing with the fallout of the Chancellor’s £25bn increase in employer national insurance, it added, while big businesses were shunning the UK for investment because of uncertainty surrounding UK tax policy.
The Bank warned that cautious households were unlikely to boost growth.
“The outlook for household spending is a particular concern,” the MPC said.
Mr Bailey said he saw “further policy easing to come” if the economy continues to cool, as he described the recent stability in price rises as “promising”.
However, Alan Taylor, who voted for an immediate rate cut, warned that unemployment was likely to peak well above 5pc. He said: “Peak unemployment is yet to come” and “may endure for some time”.
Andrew Bailey said policymakers need to see more data on inflation before deciding inflation is under control.
He said there had been one inflation number which came in under the Bank’s August projection.
“It does suggest we’ve reached the peak,” he said, but he warned “we need to see more than one number to establish that is in the picture”.
“I will be looking very carefully at the data we get before the December meeting,” he said.
Shadow chancellor Sir Mel Stride said: “Interest rates are staying higher for longer because Rachel Reeves does not have a plan or a backbone.
“With inflation running at almost double the target rate, families are facing rising prices in the shops.
“The UK has the highest inflation in the G7 thanks to Rachel Reeves’ Jobs Tax and reckless borrowing spree.
“And yet she is once again preparing to hike taxes, leaving us trapped in a doom-loop.”
Andrew Bailey said he anticipates more close votes between members of the Monetary Policy Committee (MPC) on whether to lower interest rates.
Policymakers voted by five votes to four to keep rates at 4pc, with the Governor making the casting vote.
He said thay “if disinflation continues, Bank Rate is likely to continue on a gradual downward path” but he warned that the “extent of further reductions will depend on the outlook for inflation”.
He said “making this assessment involves weighing the evidence on both sides” for members of the who he acknowledged were split on whether to place more weight to downside or upside risks to inflation.
He said: “With every cut in Bank rate, how much further to go becomes a closer call.”
Andrew Bailey said “further disinflation is being underpinned by subdued economic growth”.
The Governor warned there was a risk that activity “cools too much or for too long”.
He said there was clear evidence from the Bank’s agents around the country that the jobs market in Britain “is slowing too”.
Andrew Bailey said “underlying price pressures continue to ease” as he began his press conference at the Bank of England.
The Governor said inflation was considered to be at its peak and said policymakers needed to see a downward path “becoming established”.
He said the “risk to inflation is more balanced” but warned households and businesses remain cautious.
He expects wage growth to slow down further next year and said he was encouraged that inflation had peaked below the Bank’s August projections.
Chancellor Rachel Reeves said the latest report from the Bank of England showed inflation was due to “fall faster than previously predicted”.
She said: “Under this Government, we have seen five interest rate cuts that have helped bring down costs for families and businesses and today’s forecast shows that inflation is due to fall faster than previously predicted.
“At the Budget later this month I will take the fair choices that are necessary to build the strong foundations for our economy so we can continue to cut waiting lists, cut the national debt and cut the cost of living.”
The Bank of England said government policies were to blame for a large share of the current overshoot in inflation from the Bank’s 2pc target.
“Nearly half of the firms responding to the latest DMP survey indicated that, in response to changes in employer Nics, they had already lowered employment by more than they would otherwise have done,” the Bank said.
The survey was conducted before Ms Reeves warned this week that “we will all have to contribute” to get debt down and support the NHS, in a sign she is preparing to raise income tax.
This could raise concerns of a steep drop in activity if Ms Reeves delivers a big hike in income tax.
In brighter news, the Bank said it was confident that inflation had peaked at 3.8pc. It expects price rises to have cooled again in October to 3.6pc and fall further next year.
The Bank of England signalled it was on the verge of lowering borrowing costs further after removing the word “careful” from its language around rate cuts.
Policymakers amended their line from previous statements that it they thought “a gradual and careful approach” to cutting rates was appropriate.
Instead they said: “If progress on disinflation continues, Bank Rate is likely to continue on a gradual downward path.”
The Bank of England has upgraded its outlook for the UK economy this year but said the unemployment rate could rise by more than expected, according to new forecasts.
Gross domestic product (GDP) is predicted to reach 1.5pc over 2025, higher than the 1.2pc that the Bank last projected in August.
Growth will then slow to 1.2pc in 2026, unchanged from its previous forecast.
But a weakening jobs market means that the rate of unemployment could rise to 5.1pc by spring next year. This is higher than the 5pc peak the Bank predicted before.
Employment growth is expected to remain “subdued” amid declining job vacancies and on the back of firms slowing hiring in response to higher taxes.
Policymakers voted to keep interest rates on hold by the tightest of margins as they insisted inflation has peaked.
Sarah Breeden, Swati Dhingra, Dave Ramsden and Alan Taylor all voted for a quarter point reduction to 3.75pc.
Andrew Bailey, Governor of the Bank of England, said: “We held interest rates at 4pc today. We still think rates are on a gradual path downwards, but we need to be sure that inflation is on track to return to our 2pc target before we cut them again.”
Copy link
twitter
facebook
whatsapp
email