Following a significant interest rate cut in the US yesterday from the Federal Reserve by half a percentage point, its first since 2020, and more than many commentators predicted, today at noon all eyes will be on the Bank of England’s September monetary policy announcement.
The bank is expected to leave UK interest rates as is at 5%, after last month’s was lowered by quarter a percentage point from 5.25% to 5%.
Reports on this morning’s money markets suggest speculators anticipate an 80% chance of no change, with 20% more bullishly expecting a further quarter a percentage point of a cut to 4.75%.
The Bank of England’s Monetary Policy Committee saw the ONS report UK inflation remained just over its 2% target at 2.2% in August, with core inflation and services inflation accelerated.
The economy has stagnated for two months since the new Government was elected, few if any could lay blame so far at their door. The Autumn Budget however will be monitored more closely than most, as Rachel Reeves needs to devise a budget for growth. Which financial and fiscal levers to apply will be her conundrum.
As Rachel Reeves prepares to deliver her first budget next month she faces a complex set of challenges, including managing inflation, reducing public debt, investing in public services, and fostering a green economic recovery. Reeves needs to lead by stimulating growth, how she balances these competing demands will determine the direction of the UK economy in the years to come.