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Rachel Reeves looks to Bank of England for help as unemployment rises | Politics | News

amedpostBy amedpostAugust 6, 2025 News No Comments3 Mins Read
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The Bank of England is expected to throw Chancellor Rachel Reeves a lifeline and kick-start the economy by cutting interest rates tomorrow. It follows a rise in unemployment and concern about poor economic growth, with manufacturers warning they have been hit by high energy costs and tax rises.

The Bank’s Monetary Policy Committee is meeting tomorrow and could agree to cut the base interest rate from the current level of 4.25%, with many experts expecting it to fall to 4%. This would mean lower mortgage payments for some homeowners and could help firms borrow to invest, as well as encouraging shoppers to spend more. But lower interest rates also tend to encourage inflation, which has risen to 3.6% while the Bank’s target is 2%.

Matthew Ryan, Head of Market Strategy at global financial services firm Ebury, said: “We think that another rate cut is highly likely, although the Monetary Policy Committee faces an unenviable dilemma, as it attempts to balance a stagnant economy and jobs market with high and rising inflation.”

The Chancellor has been hit by a series of setbacks with the unemployment rate rising to 4.7%, its highest in four years. There are now 1.67 million now unemployed, up from 1.55 million a year ago.

The number of vacancies in the country also fell again by 56,000, to 727,000, in April to June 2025.

Wage growth has also stalled, official figures show.

Manufacturing output fell in the three months to June, with industry body the CBI warning that rising labour costs “have undermined manufacturers’ external competitiveness”.

And forecasts from the IMF forecasts suggest Labour is failing to meet its pledge to make Britain the fastest growing economy in the G7, with GDP expected to grow by just 1.2% this year and 1.4% in 2026, lagging behind America and Canada.

Cutting interest rates could encourage economic growth but could also undermine efforts to cut inflation, which is the highest it has been since January 2024.

The cost of food and clothing increased most, official figures show.

An interest rate cut could mean lower payments for many homeowners on variable rate mortgages, or on fixed rate mortages which are up for renewal.

Harriet Guevara, Chief Savings Officer at Nottingham Building Society, said: “Any reduction in the base rate could signal a gradual easing in the cost of borrowing. While we’re unlikely to see an immediate change in mortgage pricing, those coming to the end of fixed deals later this year may find better options opening up. Now is the time to review your finances and be ready to take advantage of changing conditions.”

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