The Bank of England announced its decision to maintain borrowing costs at 4.75%, despite facing a bleak economic outlook. This decision comes after the Bank revised its growth forecast for the final quarter of the year, now predicting zero growth instead of the previously anticipated 0.3%. The Bank's policymakers expressed concerns that the economy performed worse than expected, with no growth recorded between October and December.
Chancellor Rachel Reeves responded to the Bank's announcement, emphasizing the challenges posed by inflation and wage growth. She stated that current figures indicate inflation remains above the Bank's target while wages are increasing faster than expected. Her comments reflect a broader concern regarding economic stability and the implications for working people.
"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."
— Chancellor Rachel Reeves
Bank Governor Andrew Bailey acknowledged the uncertainty surrounding future interest rates. He indicated a potential downward trajectory for rates but cautioned that global factors complicate predictions. The Bank is set to review interest rates again in February, when it will analyze more data regarding the impact of recent budget changes and trade policies from the United States.
Three members of the nine-member rate-setting committee voted in favor of cutting rates to 4.5% in an effort to stimulate growth. This unexpected split suggests that some policymakers are more inclined to act swiftly in response to economic conditions than previously assumed. Analysts believe this indicates that the Bank may cut rates sooner than investors expect.
"The Bank will cut rates quicker than investors expect."
— Ruth Gregory
In addition to immediate economic concerns, there are broader implications for the housing market. High average house prices continue to make it challenging for individuals to secure fixed-rate mortgage deals. Many potential homeowners find themselves squeezed out of the market, complicating their financial situations amid rising costs of living.
Daisy Cooper MP criticized the government's approach, arguing that more aggressive measures are necessary to revitalize the economy. She called for a reevaluation of policies, specifically urging for the elimination of what she termed a "self-defeating jobs tax" that exacerbates challenges within health and care sectors.
"The new government needs to work much harder if it's going to turn the economy around any time soon."
— Daisy Cooper MP
"That must start by scrapping the self-defeating jobs tax which promises to make the crisis in health and care even worse."
— Daisy Cooper MP
As uncertainty looms, Bailey reiterated the Bank's commitment to a careful approach regarding future interest rate cuts. He noted that while a gradual reduction remains appropriate, unpredictable economic conditions prevent concrete commitments on timing or extent.
"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."
— Andrew Bailey
"The path for interest rates is downwards, but the world is too uncertain."
— Andrew Bailey
"We will come back in February at our next meeting and review it again."
— Andrew Bailey