HomeBusinessChancellor reminded of the political price of inflation by Bank of England

Chancellor reminded of the political price of inflation by Bank of England

Rachel Reeves probably needs no reminding of the political and economic potency of inflation.

Her party’s thumping electoral win in the summer was in large part attributed to the cost of living crisis.

Donald Trump’s triumph this week has underscored the point, his sweeping gains across all demographics put down to inflationary impacts the Biden administration was unable to tamp down in time for polling day.

In that context the Bank of England’s adjudication that her first budget is inflationary has the potential to further damage the credibility of her first fiscal intervention.

A half-point increase in the peak of inflation, a one-year extension in the return to a sustainable rate of 2%, and slower than anticipated rate cuts, all flow from her red box, the Bank forecasts.

Interest rate falls – latest updates

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Chancellor: Rate cut is ‘welcome news’

Their forecast also highlights a three-quarter point increase in growth, and all these forecasts are broadly in line with those already set out by the Office for Budget Responsibility.

What the budget does not do is change the overarching picture of inflation, as seen by the nine members of the Monetary Policy Committee, and a governor for whom political neutrality is a given.

Disinflation is the prevailing direction, and while some effects are lingering, prompting today’s cut, the trend for prices and rates is down.

“There has been continued progress in disinflation, particularly as previous external shocks have abated, although remaining domestic inflationary pressures are resolving more slowly,” the MPC says.

An overall similar story

Strikingly, when it comes to future rate cuts, its language is identical to that used following its last meeting, at which rates were held at 5%.

“Based on the evolving evidence, a gradual approach to removing policy restraint remained appropriate,” it said.

That means consumers should look forward to rates falling over time.

Rachel Reeves will hope they are right.

Content Source: news.sky.com

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