But the upcoming week could bring more soothing news on the global inflation front, as the Bank of England is widely expected to hold rates steady at 4%. At 3.8%, new data shows that inflation has indeed peaked and come down somewhat, as was previously expected for an August peak just above 4%. This trend is representative of a broader economic perspective. Experts already expect inflation to return slowly to the Bank’s target of 2% only by 2027.
The recent meeting of the central bank’s monetary policy committee came against such a backdrop to take stock of the prevailing fiscal landscape. They recognized the recent peak in inflation and its expected decline over the next few years. Our economy is clearly in transition, and looking ahead, projections are for growth to decelerate to 1.2% next year. It is projected to recover to 1.5% this year and grow to 1.8% in 2028. Only the slow, cautious recovery they’re bringing back will propel long-term, sustainable economic progress. In turn, revenue going to the federal government will be a big boost.
Such growth could allow the Chancellor to alleviate some of the spending cuts planned for the latter half of the parliamentary term. The economic cost is enormous. Meanwhile, reforms as simple as increasing tax revenues would provide the government with additional flexibility to make investments while maintaining prudent budgetary policies.
On top of that, traders are betting on a rate cut. In fact, some market analysts say the first cut could come as soon as December. The cut in rates is earlier than expected by most of the financial markets. This move, ahead of the 2023 holiday season, can provide borrowers with critical relief that they need.
Andrew Bailey, the Governor of the Bank of England, indicated optimism regarding inflation trends, stating, “that inflation is on track to return to our 2% target.” His statements illustrate great faith in the Bank’s plans and their resolve to keep prosperity flowing throughout the economy.
Though these are all hopeful signs, we worry about the political terrain for any economic policy. Rachel Reeves’ first budget and the budget that follows it will be a linchpin in determining whether economic conditions improve or worsen going forward. A well-timed rate cut might improve Reeves’ political fortunes as she meets her budgetary tests. This bet can help her party emerge from the wilderness and prove it can solve real economic challenges.
The Bank of England remains cautious, with Bailey preferring to observe how upcoming budget policies will influence fiscal calculations before taking further action. The central bank’s faith in their reputation as apolitical is worth anything, especially during tenuous economic periods.
As the year progresses, it is evident that challenges persist, there are grounds for optimism within the UK economy. This positive marriage of stabilizing inflation with unanimous projected economic growth could provide an avenue to recovery if we’re lucky, by 2028.