Bank of England governor Andrew Bailey alluded to the “uncertainty” caused by Labour’s October Budget as officials predict zero growth for the end of 2024.
The Bank chose not to lower interest rates on Thursday after stubborn inflation rates climbed up from 2.3% in October to an eight-month high of 2.6%
The Bank’s monetary policy committee voted to hold interest rates – the price of borrowing – at 4.75%.
It means UK interest rates will now be higher than in the US and Eurozone going into the new year.
Bailey explained that the decision was motivated by a “heightened uncertainty in the economy”.
He pointed to some of Reeves’ more controversial decisions like increasing national insurance contributions for employers – to raise £25bn – as well as the hike to national living wage.
A survey from the Bank found businesses are increasing prices and cutting jobs in response – news which will come as a blow to Labour, as the government has made growing the economy its central mission.
Bank staff now expected zero GDP growth in the final three months of 2024, which is weaker than the 0.3% they had predicted in November.
Bailey was hesitant about predictions for next year, too, and refused to say when interest rates might go down.
Bailey said: “I think the path is downward but I really would caution that at this stage, with the amount of uncertainty, we can’t tell you by how much or when particular moves are going to take place.
“The world is too uncertain. We will come back in February at our next meeting and review it again.”
He added: “You can see that in immediate market pricing. The market say, well they might cut in February, they might not. That’s a pretty reasonable starting point.”
The Bank also warned that “geopolitical tensions and trade policy uncertainty” were adding to economic pressures, alluding to Donald Trump’s incoming administration and the expectation he will slap tariffs on international trade.
Transport secretary Heidi Alexander remained optimistic though, and told LBC: “The OBR is still predicting some growth this year [although] it’s not as much as we would like and we need to get the economy firing on all cylinders, we need to get more money in people’s pockets.”
But she pointed to Labour’s upcoming planning reforms and autumn investment summit, and said their impact has not trickled down into the economy yet.
Keir Starmer also tried to stay optimistic on Thursday when appearing in front of the liaison committee.
He said it would “take some time” to improve living standards, adding: “One of the biggest mistakes, I think, of the last 14 years was the idea that everything could be fixed by Christmas. It can’t.”
He added: “The forecasters are predicting on the back of the circumstances as they now are, they’re not able to take yet into account things that haven’t happened.”
