Today, BoE policymakers cut base rate from 4.75% to 4.5%, exactly as everybody expected. That’s the third cut since August, when rates peaked at 5.25%.
Yet two of the BoE’s nine-strong monetary policy committee (MPC) pushed for a bigger 0.5% rate cut as they fear the impact of the slowing UK economy.
The BoE also published its GDP growth forecast for the UK economy in 2025 today. And it’s grim.
It slashed last November’s forecast in half. Instead of growing a modest 1.5% in 2025, GDP is set to rise by a barely 0.75%.
Further evidence of how the chancellor has taken the fragile economic recovery and squashed it flat.
MPC minutes said GDP growth was weaker than expected as “business and consumer confidence have declined”.
Pretty much everything started to decline, the moment Reeves opened her mouth and started talking the UK economy down last July.
She followed this with £40billion worth of tax hikes in her October Budget, the biggest Treasury raid for 30 years.
The centrepiece was the massive hike to employer’s national insurance. Bosses have responded by axing jobs, cutting hiring, hiking prices and reducing investment.
The Budget even gave inflation another nudge, leaving the BoE stuck.
To be fair, other forces are squeezing growth. Global energy prices have increased, and Reeves can’t do much about that.
There’s not much anybody can do about President Donald Trump, whose planned corporate tax cuts and trade tariffs will also fire up inflation.
But Reeves picked a terrible time to go nuclear on our taxes. While borrowing an extra £30 billion this year, leaving the UK on a fiscal knife edge.
More tax hikes and spending cuts may follow, when she delivers her Spring Statement on March 26.
The BoE’s downgrade is a serious blow to Reeves, who is banging on about growth but has no idea how she can generate it.
Especially when Energy Secretary Ed Miliband and is trying to destroy it, by blocking North Sea oil and gas fields worth billions.
Where the BoE goes from here is anybody’s guess. Two more rate cuts? Three? Four? None? I’ve seen every prediction.
The BoE isn’t just stuck between a rock and a hard place, but Miliband too. Not a nice position to find yourself in.
Worse, consumer price inflation isn’t dead yet. Remember last September, when it fell to 1.7%? By December, it had edged back up to 2.5%.
The Bank now predicts it will hit 3.7% in the summer. Deputy PM Angela Rayner’s move to let councils hike allow council tax hikes of up to 10% won’t help.
Reeves won’t help either, if she hikes fuel duty in her spring statement, as anticipated.
The pound is falling after today’s rate cut. That will make imports even more expensive and throw further fuel on the inflationary fire.
With all that going on, today’s rate cut offers mortgage borrowers little respite.
This is the cost-of-living crisis that just won’t die. In contrast to the UK economy, which has flatlined.
Along with Chancellor Rachel Reeves’s career prospects. I suppose that’s something.