Government action leaves bank in the dark -
UK economy

Government action leaves bank in the dark

The Bank of England has been left in the dark ahead of next week’s interest rate decision after Chancellor Jeremy Hunt pushed back the date for his autumn statement. As a result, the bank’s Monetary Policy Committee (MPC), which sets the UK’s base rate, will

meet on 3rd November without knowing the government’s tax and spending policies. The autumn statement had been scheduled for 31st October, several days before the MPC meeting. However, it has now been moved to 17th November.

With inflation breaking the 10% barrier in September, interest rates are set to continue rising for the foreseeable future.

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The squeeze on public spending

According to officials, being left in the dark means rate-setters will struggle to determine how far the Treasury will squeeze public spending.

Many of the stimulus measures taken by the former Prime Minister, Liz Truss, were deemed highly inflationary, and Hunt has already scrapped many of them. This has reduced forecasts about November’s interest rate increase, with predictions from financial experts dropping from a 1% increase to a 0.75% one.

Earlier this week, the new Prime Minister, former Chancellor Rishi Sunak, said that the government would need to take “difficult decisions to restore economic stability.” Some believe this could mean significant spending restraints placed on all government departments, which would have a deflationary impact. This could mean that the central bank can ease rate hikes with lower increases than the markets were expecting.

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However, there are also concerns that Sunak is sending out mixed messages. When speaking at his first Prime Minister’s Questions earlier this week, he stressed the need to take action to restore stability but also said that the government would protect the most vulnerable and be fair and compassionate regarding restoring stability in the economy. Many are now wondering how the new PM will find a way to be both aggressive and fair to honour all of these promises.

With confusion over what the Treasury’s plans are likely to be and no clarification until well after the MPC meeting, the nine members of the MPC will have some difficult decisions to make about interest rate movements next week.

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