The Bank of England gave a grim assessment that the economy is set to flatline today as it spared Brits fresh mortgage pain by keeping interest rates on hold.
Threadneedle Street cut growth forecasts as it announced that the base rate is being maintained at 5.25 per cent – but warned there is no prospect of cuts soon.
Although the move by the Monetary Policy Committee is a relief for homeowners, markets will be alarmed by the darkening mood about the prospects for UK plc.
The Bank see growth tumbling to zero next year and staying there until 2025.
‘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 said.
The forecast is based on the Bank starting to reduce interest rates in the latter half of next year.
The Bank of England spared Brits fresh mortgage pain today by keeping interest rates on hold
The economy is set to bump along the bottom next year, according to the BoE
Governor Andrew Bailey said higher interest rates are ‘working and inflation is falling’, but pointed out that prices are still rising well above the 2 per cent target
The Bank of England gave a grim assessment that the economy is set to flatline
Mr Bailey said it was still ‘much too early to be thinking about rate cuts’
The MPC backed another pause on rates by six members to three.
In September, the margin was five to four – which was the first hold decision for nearly two years after 14 hikes in a row.
Last time the MPC met in September it downgraded the outlook for the third quarter of 2023, predicting that GDP would only rise by 0.1 per cent.
A month earlier it had anticipated a 0.4 per cent increase.
Although the Bank’s assumptions imply the peak for rates is likely to have been reached, Mr Bailey said they are set to remain high for ‘quite some time’.
And while CPI is falling slightly faster than previously anticipated, it might not return to the 2 per cent target until the end of 2025.
Mr Bailey said that GDP growth will remain below its historic average across the Bank’s forecast until 2026.
‘GDP is projected to remain broadly flat through 2024,’ he said.
‘Growth then recovers over the second half of the forecast period.
‘It remains below historical averages, however, reflecting both restrictive monetary policy and subdued potential supply growth.’
Responding to the Bank’s findings, Mr Hunt said: ‘Inflation is falling, wages are rising and the economy is growing.
‘The UK has been far more resilient than many expected, but the best way to deliver prosperity is through sustainable growth.
‘The Autumn Statement will set out how we will boost economic growth by unlocking private investment, getting more Brits back to work, and delivering a more productive British state.’
However, Threadneedle Street’s forecasts come with a health warning.
A year ago it suggested the UK was on course for its longest recession since the 1930s, and has repeatedly undershot on inflation.
In July the Bank appointed former US Federal Reserve chair Ben Bernanke to lead a review of its forecasts.
The Bank’s updated forecasts come just weeks before Jeremy Hunt is due to deliver his crucial Autumn Statement