Bank of England boss has economic concerns
The Governor of the Bank of England (BoE), Andrew Bailey, has sounded the alarm on the UK’s economic growth outlook. He believes the potential for the UK to experience economic growth in the near future is lower than it has been across much of his working life, also citing that interest rates are unlikely to come down any time soon1.
The comments from Andrew Bailey have followed an Office for Budget Responsibility (OBR) forecast which also poured ice cold water on the UK’s economic growth outlook. The government pinpointed a lack of prospective economic growth partially on two main factors, namely high-interest rates and the level of inflation.
Inflation is the rising cost of goods and services, which the BoE tries to keep at around 2%. However, inflation has recently spiralled out of control (due to external factors) and the central bank has tried to deal with it by increasing interest rates, which essentially discourages spending to help bring down prices. Despite a record marathon of interest rate hikes, inflation remains more than double the BoE’s target at 4.6%1.
A blame game emerging?
The report from the House of Lords Committee mentioned that reforms may be required for the Bank of England to improve performance and become more accountable. It continued to state that the central bank had lost public trust. Thus, the government may be suggesting that some of the blame lies with the Bank of England for its actions in trying to tackle inflation, which has seen it raise interest rates to a 15-year high.
Yet, Andrew Bailey has stated that we are not close to reducing interest rates until inflation gets closer to optimum levels, specifically saying “That’s why I have pushed back of late against assumptions that we’re cutting interest rates”1. This won’t be the news homeowners with a mortgage will want to hear. Our team can still help you assess your options and try to secure the most favourable mortgage for your situation. Get in touch for personalised support and brokering.
How bleak is the outlook?
The Office for Budget Responsibility (OBR) previously forecasted the UK’s economic growth. This year the UK economy is expected to grow by 0.6%, but it was the following years where we were supposed to see us claw back the losses during the pandemic and the events thereafter. However, instead of 1.8% growth in 2024 and 2.5% growth in 2025, the OBR is now tipping growth to be as low as 0.7% and 1.4%, respectively.
Although things are due to get slightly better, the light at the end of the tunnel may not be as near and not as bright as it was recently predicted.
Sources
1. https://www.bbc.com/news/articles/cjrpzxpv90eo
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January 2024
