The Bank of England has cut interest rates from 4% to 3.75% and policymakers warned the economy will stagnate amid the Chancellor’s second Budget which has seen the government hike taxes even further.
The Bank has warned they are expecting zero growth in the last three months of the year and described the economy as “lacklustre.”
The Bank of England governor Andrew Bailey cautioned, “We still think rates are on a gradual path downward.
“But with every cut we make, how much further we go becomes a closer call.”
The Shadow Chancellor Sir Mel Stride said, “Lower interest rates will be welcome news for many families – but rates are being cut despite inflation remaining well above target, thanks to rising unemployment and low growth under Labour.
“This decision reflects growing concerns about the weakness of our economy. Labour’s choices have left us with the highest inflation in the G7, while the latest figures showed the economy shrinking and unemployment back to pandemic levels.
“The economic mismanagement of Rachel Reeves has left the Bank of England with an impossible dilemma, balancing high inflation against a fragile economy.
“Only the Conservatives have a leader with a backbone, a clear plan and a strong team to deliver a stronger economy.”
Sylvain Broyer, an economist at S&P Global Ratings, said, “Today’s cut doesn’t change the BoE’s dilemma.
“With real wages still racing ahead of productivity, underlying price pressure is not tamed, curbing room for more easing.
“We see scope for just one more cut before spring 2026.”
The Chancellor said: “This is the sixth interest rate cut since the election – that’s the fastest pace of cuts in 17 years, good news for families with mortgages and businesses with loans.
“But I know there’s more to do to help families with the cost of living.
“That’s why at the Budget we froze rail fares and prescription charges, and will be cutting £150 off the average energy bill next year.”
Thomas Pugh, chief economist at RSM UK said, “Ultimately, with underlying inflation likely to fall much more slowly than headline inflation, wage growth to stabilise at levels a little too high for comfort, and a potential rebound in growth in the first half of the year as postponed activity takes place, the Bank will have to remain cautious next year, especially as it approaches the neutral rate.
“We think there is room for one more cut, taking rates to 3.5pc. Further easing below that will depend on the weakness in the labour market feeding more aggressively into lower wage growth.”
