ALEX BRUMMER: Why the Bank of England should reduce charges right this moment (however will not)
Britain has slain the inflation dragon and, as the nation gets ready to go to the polls, Rishi Sunak can claim an economic triumph.
Of course, it is Andrew Bailey, governor of the independent Bank of England, who has the best claim on this success because it was he who did the most to put the brakes on the rising cost of living by raising interest rates to 5.25 per cent and slowing the supply of credit to the financial system.
But Chancellor Jeremy Hunt and the Prime Minister also made significant contributions to returning the inflation rate to the 2 per cent target.
By bringing discipline to the public finances, they made sure the shocks to the system caused by the pandemic and Russia‘s war on Ukraine did not become embedded.
Andrew Bailey , governor of the independent Bank of England has the best claim on this success because it was he who did the most to put the brakes on the rising cost of living by raising interest rates
As chancellor, Mr Sunak also stiffened Mr Bailey’s resolve by quietly reminding the Bank, when it made excuses for inflation spiralling out of control, that it had a responsibility to meet the target at all times
As chancellor, Mr Sunak also stiffened Mr Bailey’s resolve by quietly reminding the Bank, when it made excuses for inflation spiralling out of control, that it had a responsibility to meet the target at all times.
Moreover, in the face of politically sensitive strikes on the railways, in the NHS and other public services, the Government held its nerve, refusing to agree to excessive pay rises and, in doing so, preventing wage-price spiral which doomed the Labour governments of the 1970s.
Now the target has been met, Mr Bailey and the interest rate-setting Monetary Policy Committee should vote today to cut the base rate immediately.
However, despite the Bank’s much-trumpeted independence – a status granted by the Blair/Brown New Labour government in 1997 to give it the power to act in the best interests of households and businesses rather than the government – it is widely accepted that it will be reluctant to lower rates in the middle of an election campaign.
The Bank of England. The case for the Bank of England to cut rates is overwhelming. It would provide an immediate boost to the economy by encouraging more lending to consumers and enterprise
At a time when much of the government apparatus is in ‘purdah’, such a move could be considered too much of a political hot potato.
But the case for the Bank of England to cut rates is overwhelming.
It would provide an immediate boost to the economy by encouraging more lending to consumers and enterprise.
Most significantly, it would signal to the financial markets and mortgage lenders that the trend in home loan costs is on the way down, helping consumers to meet monthly repayments and giving a much-needed boost to a moribund residential property market.
Rather than wait for the election result, the Bank should act now to give added momentum to the nascent recovery.
We got there! Sunak hails fall in inflation
Rishi Sunak promised fresh tax cuts yesterday after inflation fell to its lowest level for three years.
The Consumer Prices Index has dropped to the 2 per cent target for the first time since July 2021, easing cost-of-living pressures and paving the way for interest rate cuts.
The Prime Minister, who put tackling inflation at the heart of his economic plans, declared: ‘We’ve got there.’ And he said the return to economic stability would pave the way for more tax cuts if the Tories win next month’s election.
He told LBC Radio: ‘It’s very good news because the last few years have been really tough for everybody… But we’ve stuck to a plan, we’ve taken the action needed, it wasn’t always easy, but we’ve got there, and inflation is back to target. It is because of that economic stability that we have restored, which was my priority when I got this job, that we have now been able to start cutting people’s taxes.
‘If I win this election, I want to keep doing more of that.’
The Prime Minister, who put tackling inflation at the heart of his economic plans, declared: ‘We’ve got there’
The Tory manifesto sets out plans for tax cuts totalling £17.2 billion a year, including a 2p cut in National Insurance, abolition of NI for the self-employed and a guarantee that the state pension will never be taxed
Mr Sunak has put the tax divide with Labour at the centre of his election campaign. The Tory manifesto sets out plans for tax cuts totalling £17.2 billion a year, including a 2p cut in National Insurance, abolition of NI for the self-employed and a guarantee that the state pension will never be taxed.
Labour’s manifesto includes £8.5 billion a year in tax rises – and the Tories claim the party will need to find a further £38.5 billion just to fund its plans. Shadow Chancellor Rachel Reeves said the fall in inflation was ‘welcome’, but added: ‘Unlike Conservative ministers, I’m not going to claim that everything is all fine – that the cost-of-living crisis is over – because I know that pressures on family finances are still acute.’
Chancellor Jeremy Hunt suggested that the Bank of England should move quickly to ease the pressure on homeowners, but the Bank’s monetary policy committee is expected to keep interest rates on holds when it meets today.
The fall in inflation was helped by a steep reduction in food price rises to 1.7 per cent. Food inflation had topped 19 per cent at the height of the cost-of-living crisis.
But the markets suggest rates will remain at 5.25 per cent today. There is only a one-in-three chance they will be cut. Traders say September is the likeliest date for a cut.
