London (Parliament Politics Magazine) – The BoE has decided to keep interest rates at 4.75%, highlighting the economic conditions and inflation concerns following Chancellor Rachel’s budget and global trade uncertainties.
The Bank of England monetary policy committee maintained interest rates at 4.75% in line with expectations but revised its UK growth outlook to zero for the final quarter, a decline from the 0.3% growth it predicted in November.
The MPC stated that Rachel Reeves’s £40bn tax hike budget, as well as increasing geopolitical tensions and trade uncertainty after Trump’s comeback to the office, are major factors in slowing growth and ongoing inflation risks.
The central bank’s governor, Andrew Bailey, stated they could not promise future rate cuts due to uncertainty around the Chancellor’s first budget in October.
As reported by the Telegraph, the bank survey revealed that companies are raising prices and pausing hiring in response to a £25bn hike in national insurance.
The committee voted six to three to maintain interest rates, while three members, which includes Dave Ramsden, and economists Swati Dhingra and Alan Taylor urged for a 0.25% reduction amid concerns about the worsening economy.
Most members of the committee warned about the risk of inflation, highlighting the November headline rate of 2.6%, exceeding the Bank’s 2% target.
Andrew Bailey, the Bank’s governor, suggested that Threadneedle Street is prepared for future rate reduction but expressed warning regarding the economic challenges.
He stated,
“We think a gradual approach to future interest rate cuts remains right, but with the heightened uncertainty in the economy we can’t commit to when or by how much we will cut rates in the coming year.”
The minutes of the meeting revealed that there is growing disagreement between policymakers about how much the Chancellor’s latest Budget will impact economic growth.
The Telegraph reports that the bank stated,
“Businesses were reacting to the Budget with ‘lower headcount, hours and pay and higher prices than otherwise.’”
It also warned,
“Early reactions to the Budget suggest a risk of greater upward pressure on CPI inflation than in November [forecasts], although most contacts are still deciding on their pricing response.”
According to the Bank’s Agents survey, which collects data from businesses across the UK, a growing portion of UK families feel Ms Reeves and Sir Keir Starmer are out of connection with their financial struggles.
The survey revealed,
“There was a common view that the UK was moving from a cost-of-living crisis period to higher cost of living and lower living standards being the ongoing norm.”
As the UK’s economy contracts, with a 0.1% decline in output and job reduction rising sharply, there are growing calls that further rate cuts may be needed to tackle economic weakness.
Britain’s leading bank Peel Hunt has reported that in 2024, 5% of all UK-listed companies were publicly put under offer, the highest level in recent years.
Chancellor Rachel Reeves said,
“I know families are still struggling with high costs. We want to put more money in the pockets of working people, but that is only possible if inflation is stable and I fully back the Bank of England to achieve that.”
The Chancellor’s Autumn Budget imposed a 20% inheritance tax on AIM-listed stocks, lowering relief from 100% to 50%, which was less impactful than feared, enhancing the AIM index.
Two weeks ago, the Labour government also proposed six milestones as a “Plan for change,” of which one is to raise the people’s standard of living.