There is notable activity outside the Bank of England, where city workers are enjoying mild weather during their lunch breaks. Inside the Bank, a significant decision was recently made to maintain interest rates at 4%. This choice was reached by a narrow margin, with the interest rate panel indicating that inflation may have peaked.
Governor Andrew Bailey has expressed a desire to monitor upcoming developments before considering any rate cuts. He acknowledged that weaknesses observed in the labor market could be influential in future decisions. The Bank has also connected last year’s budget measures—such as hikes in employer National Insurance Contributions and minimum wage increases—to persistent price pressures experienced over the past year.
The next Budget is anticipated to be vital, potentially alleviating price pressures through direct support on bills, but may also introduce tax increases that could reduce disposable income. The Chancellor has asserted that his policies have created favorable conditions for possible rate reductions, but the Bank’s findings highlight that previous budget measures have contributed to increased costs for employers and hiring hesitancy in the labor market.
The Bank has refrained from making predictions about the next Budget’s contents, yet it noted that broader concerns among consumers and businesses might be inhibiting economic growth. Although consumer spending remains cautious, the Bank forecasts a modest economic growth of 1.2% for 2026, lower than the predicted 1.5% growth for this year.
The interest rate panel will need to assess the implications of various potential policies, including tax changes and adjustments to the National Living Wage, at their next meeting in mid-December. Some economists speculate that if no actions are taken by then, a rate cut may occur in February.
While the Bank anticipates a gradual decline in rates, some members still express concern over ongoing inflation pressures. Their research suggests that inflation expectations are influenced by recent experiences, particularly fluctuating food prices, which could lead to wage demands that keep inflation elevated. Additionally, many homeowners could face increased costs when their mortgage rates are renewed if current rates persist.
Source: https://www.bbc.com/news/articles/cy0y34dxl7lo?at_medium=RSS&at_campaign=rss