In a widely-anticipated move, the Bank of England today held the interest rate at 4%. This decision followed a contentious 4-3 vote. This major change in direction indicates the panel’s view that inflation has probably reached its high point. They remain hesitant to extrapolate from that positive the new economic trajectory. The next meeting is scheduled for mid-December. Once again the rate setters will be using hindsight to see how their policies have shaped the current economic situation.
Even though consumers are still gun shy on spending, long-term economic projections in 2026 only show growth of 1.2%. This 0.6% growth rate is well below the 1.5% predicted for this year and is worrying both economists and policymakers at all levels of government. Governor Andrew Bailey would like to wait and see how those play out first. He underscored that he’s not ready to cut rates without strong evidence to the contrary.
We know the current economic landscape is tough for many of today’s homeowners. If interest rates remain elevated, hundreds of thousands will see their costs increase significantly when they have to renew their mortgages. This unfortunate reality highlights the need for sound monetary policy to carefully manage inflationary pressures while continuing to foster the conditions needed to grow.
Rate setters at the Bank of England pore over a wide array of monthly indicators. Cutting through the noise, they identify key metrics such as inflation rates, employment figures, and other critical economic indicators. We should all be as worried as Governor Bailey about these cracks forming in the labor market. These concerns might affect the timing of any future rate cuts.
Economists are aflutter with guesswork about a likely future rate cut. Provided that economic conditions cooperate, they think it could be as soon as February 2024. Borrowers need to temper their expectations for relief. If rates are lowered at all, they’ll take effect gradually rather than immediately.
The Treasury should therefore be more concerned about the 4.4% growth forecast for 2026. A much lower than anticipated growth rate would pose a major challenge to its wider economic objectives.