Inflation set to plummet below 5%… but ‘economic growth slowing’
It held interest rates at 5.25% yesterday, announcing the surprise drop in inflation at the same time. It means Prime Minister Rishi Sunak is likely to fulfil a pledge to halve inflation by the end of this year to around 5.4%. It stood at 6.7% in September.
The Bank expects the rate will fall further next year, as energy and food price rises ease. But its forecasts show it will stay above its 2% target until next autumn. And while the economy has been growing, the trajectory was less certain in 2024.
It is not predicting recession but expects zero growth from now, across next year and into 2025.
“UK economic growth is slowing,” the Bank said in its inflation report.
Six members of the nine-person Monetary Policy Committee voted to keep the base interest rate unchanged.
Governor Andrew Bailey said: “Higher interest rates are working and inflation is falling.
“But we need to see inflation fall all the way to our 2% target. We’ve held rates unchanged this month, but we’ll be watching closely to see if further rate increases are needed. It’s much too early to be thinking about rate cuts.”
He added: “Interest rates will have to remain where they are now for an extended period to get inflation back to target.”
Chancellor Jeremy Hunt, who welcomed the inflation news, promised to kick-start in his mini-Budget on November 22.
He said: “The UK has been far more resilient than many expected, but the best way to deliver prosperity is through sustainable growth.
READ MORE Interest rates LIVE: Bank of England keeps 5.25% freeze despite calls for drop
“The Autumn Statement will set out how we will boost economic growth by unlocking private investment, getting more back to work and delivering a more productive state.”
Samuel Tombs, from Pantheon Macroeconomics, expects the Bank to cut interest rates next year, with signs the jobs market is cooling.
He said: “We are sticking with our forecast the MPC will reduce the Bank rate by 75 basis points next year with the first 25 basis point cut coming in May.”
Rachel Reeves, Labour’s Shadow Chancellor, said: “At the start of the year, Rishi Sunak and Jeremy Hunt promised to get the economy growing. We are forecast to have gone from low growth to no growth, with working people paying the price.”
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