Senior policymakers at the Bank of England are preparing to make their final calls about interest rate decisions. The release, planned for noon on Thursday, has already created a huge buzz. This meeting follows the surprise cut in the UK’s inflation rate last month. Last month, that rate fell to 3.2%, a decrease from 3.6% in October. Meanwhile, economists and market analysts are keeping a very close eye on what’s happening. The new £25 billion increase in employer national insurance contributions, which started in April, has made them even more so.
Independently-elected member of the Bank of England’s Monetary Policy Committee, Swati Dhingra, has been speaking out. She said the committee should prevent an “overly precautionary” approach when discussing future interest rate cuts. Dhingra’s position comes against the backdrop of heightened market speculation about the prospects of such cuts. After the September inflation numbers, those odds jumped to over 95% likelihood for a cut.
As of October 2023, the Bank of England’s base rate is 4%. Policymakers have already reduced rates in February, May, and August of this year. In their most recent meeting, they only narrowly voted to halt additional cuts. The last inflation data release has led to increased discussion among committee members about whether an even bigger increase may be needed.
The Bank’s decision will likely take into account various inflation metrics, including food price inflation, which eased to an annual rate of 4.2%, down from 4.9% in October. Surging annual services inflation remains at an elevated 4.4%. It has dropped a bit from last month’s 4.5% rate.
In response to these changes, the Trades Union Congress have been vocal about the need for rate cuts to boost investment. They called these cuts “the shot in the arm that the economy needs.”
The Bank of England is preparing for its December meeting. The jump in the national insurance contribution associated with Rachel Reeves is an example of this, and policymakers should be wary of especially damaging fiscal policies getting permanently entrenched through default. The Bank’s decision is the appropriate course of action given the current economic context. It will further inform future monetary policy as the UK continues to plot its path to economic recovery.