Early signs in the UK have shown a significant decrease in inflation. The consumer prices index last month dropped to 3.2%, down a tick from 3.6% in October. This completely unexpected decline has caused quite a stir. Indeed, the market consensus is that the Bank of England will cut borrowing costs at its next meeting. Bank policymakers within the Federal Reserve will announce their decision this Thursday at noon. This announcement has the potential to be an early Christmas present to consumers and businesses alike!
The Bank of England is similarly reluctant to touch the base rate, which stands at 4% today. This welcome decision follows a 7-6 vote last month to temporarily freeze any reductions. Instead, analysts are forecasting for a cut of 0.25 percentage points, which would inject some new energy into the economy ahead of the gift-giving season. This was the fourth such cut by the central bank, following cuts made in February, May, and August. Those recent inflation figures have dramatically shifted the economic landscape.
Overall inflation numbers are still showing initial signs of progress. With annual services inflation at a very high 4.4%, down just a tick from 4.5% in October. Food price inflation is noticeably down. It’s still high, and it has come down to an annual rate of 4.2%, a surprise dip from 4.9% last month.
The Trades Union Congress had clearly been hoping for a larger, more substantive rate cut. In their mind, a few big cuts can give the economy the jump start it so sorely needs.
As the Bank of England gets closer to its decision, many economists are calling for restraint. Swati Dhingra added that the bank needs to be “less timid” in terms of pushing through cuts. This is particularly crucial given the rapid decrease in inflation. This view matches with the mainstream economic mood, which is in favor of monetary accommodation to spur growth.
Just last month, Labour’s shadow chancellor Rachel Reeves called for a £25 billion hike in employer national insurance contributions. Here’s why this decision matters for businesses and workers across the UK. Does that matter though, as the country is undergoing a huge economic crisis right now. The next Bank of England decision will be crucial in determining what happens to the confidence of consumers and investors.