It is no surprise that the Bank of England have cut interest rates, but the Bank should have been bolder in its attempt to kick some life into the economy and actioned a double cut to 4%. Even with a major announcement this afternoon on UK / US trade tariffs to add to the India deal earlier this week we don’t see any changes in the overall downward trajectory.
The decision of the Monetary Policy Committee today to cut rates to 4.25% is another move in the ongoing battle for the Bank’s attention between inflation and growth— despite inflation consistently remaining above the Bank’s 2% target and expected to rise further, it is growth that is clearly their priority.
The Bank have recognised that rising inflation — driven largely by regulated price increases — is a short-term issue. The Bank of England has forecast in its Monetary Policy Report that inflation will reach 3.4% later this year, but it is expected to head back towards 2% by the end of the year.
Stagnating economic growth is not a short-term issue. A weak economic outlook, compounded by uncertainty surrounding global trade, is a long-term problem that requires intervention. With the Government relying on growth for the success of its fiscal strategy, the Chancellor will be relieved to see a cut in interest rates and the Bank’s prioritisation of growth.
That said, she may be looking longingly over the Channel as the ECB continues an aggressive rate-cutting strategy to support its struggling economies, with interest rates now at 2.25%. Reeves could certainly do with our own Central Bank being much bolder.
