Bank of England Delays Inflation Target to 2027
- The Bank of England has reduced interest rates from 5% to 4.75% on November 7, 2024.
- The recent Budget is forecasted to raise inflation and delay the inflation target to mid-2027.
- Governor Andrew Bailey stated that a gradual approach to interest rate cuts is essential for monitoring economic effects.
On November 7, 2024, the Bank of England announced a cautious stance regarding interest rate cuts, shifting rates from 5% to 4.75%. This decision follows an autumn Budget by Chancellor Rachel Reeves that introduced £40 billion in tax increases to stimulate public spending. The Bank’s Monetary Policy Committee (MPC) indicated that these tax measures are expected to increase inflation by nearly 0.5 percentage points by late 2026, delaying the inflation target goal from 2026 to mid-2027. Governor Andrew Bailey emphasized a gradual approach to rate cuts, allowing observation of the Budget's effects on the economy. While the new outlook presents challenges for future rate cuts, some economists argue that the MPC's fundamental expectations remain consistent despite increased uncertainty following the Budget. Concerns about the job market may also arise due to higher national insurance taxes and minimum wage increases. Bailey dismissed potential fears around the impact of political changes in the US, indicating an intent for open dialogue between the UK and US administrations regarding trade and economic policies.