Bank of England downgrades growth19 Dec 2024 18:08
The Bank of England has given warning that the economy is grinding to a halt as companies respond to Rachel Reeves’s record tax raid by raising prices and shedding jobs.
Policymakers now expect zero growth in the final three months of 2024, a sharp downgrade compared with its previous projection of 0.3pc. The economy shrank in October, raising fears of recession.
While officials voted on Thursday to keep interest rates on hold at 4.75pc, Andrew Bailey, the Bank’s governor, said they could not commit to future rate cuts amid uncertainty over the Chancellor’s maiden Budget.
A Bank survey warned that employers were increasingly responding to a £25bn increase in employer national insurance contributions by raising prices and pausing on hiring rather than offering staff lower wages.
Policymakers suggested that ongoing uncertainty over pay, including the impact of another big increase in the minimum wage had “added to the argument for a gradual approach to the withdrawal of policy restrictiveness”.
Investors had already been pricing in just two rate cuts next year in a move that means borrowing costs will remain higher for longer.
Mr Bailey said: “We’ve held interest rates today following two cuts since the summer. We need to make sure we meet the 2pc inflation target on a sustained basis. We think a gradual approach to future interest rate cuts remains right, but with the heightened uncertainty in the economy we can’t commit to when or by how much we will cut rates in the coming year.”
The Bank suggested that inflation could rise further next year, with prices as measured by the consumer prices index (CPI), rising to 2.6pc in November.
Businesses were reacting to the Budget with “lower headcount, hours and pay and higher prices than otherwise,” the Bank said. “Early reactions to the Budget suggest a risk of greater upward pressure on CPI inflation than in November [forecasts], although most contacts are still deciding on their pricing response.”
The survey by the Bank’s Agents, who speak to businesses across the country, also warned that a growing share of British families believed Ms Reeves and Sir Keir Starmer were out of touch with the pressures facing British families.
Going well for Labour then STP and co?
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