Sunak Meets One of His Five Pledges, but at the Expense of Economic Growth

Sunak Meets One of His Five Pledges, but at the Expense of Economic Growth

The Bank of England’s decision to hold interest rates at 5.25% for the second time in a row was expected, despite the worrying signs that its war on inflation may be crushing the economy.

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The Bank is forecasting that inflation will fall from its current rate of 6.7% to 4.25% by the end of the year, which will be welcome news for consumers and businesses. However, the Bank is also insisting that it will need to keep rates at current levels for a prolonged period if it is to hit its long-term inflation target of 2%.

This is coming at a high cost to output, growth, and prosperity, with consumers and businesses on the edge of a precipice.

The Royal Society of Chartered Surveyors reports the gloomiest outlook for building homes since the pandemic, company insolvencies are at their highest since the 2008-09 financial crisis, and industrial production is shrinking.

Conclusion

The Chancellor is under pressure to cut taxes in his autumn statement on November 22, but has insisted that there will be no tax cuts. However, he could potentially unleash the aspiration, enterprise, and growth being stunted by higher interest rates by easing the tax burden in his spring budget next year.

The Bank insists that high interest rates are going to be with us for the next couple of years, but the author is not convinced.

The hardline majority on the Bank of England’s monetary policy committee, which pushed for higher rates, is starting to fracture.

The truth is that the impact of the current high borrowing costs has yet to fully hit home, and if the supply of credit does grind to a halt, the clamour to bring down interest rates will only increase. And if the housing market shows signs of imploding, the pressure to reduce them will become irresistible.

TDPel Media

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