Sunak could get another major boost tomorrow, when the BoE’s rate-setting monetary policy committee (MPC) gathers to discuss whether it should cut base rates from today’s ultra-high 5.25 percent. There shouldn’t even be a discussion. The MPC should have started cutting rates months ago.
That would have lifted the economy, boosted consumers and businesses, saved jobs and eased the pressure on millions of mortgage borrowers.
The UK desperately needs that kind of boost, as we’ve been through years of misery and uncertainty ever since the pandemic in 2020.
In fact, since the banking crisis in 2008.
Last time inflation was two percent, in the summer of 2021, base rate stood at just 0.25 percent. Today, it’s more than 20 times higher.
That makes no sense at all.
Yet the MPC refuses to acknowledge that the war on inflation is won, and seems determined to stretch out the pain.
CPI – I repeat – is back to target.
That means BoE governor Andrew Bailey won’t have to write a letter to the Chancellor, explaining why he’s messed up.
True, core inflation, which worries the BoE overly, is still relatively high at 3.5 percent.
Yet core inflation isn’t the target it’s trying to hit. CPI is the target, and we’re there. It HAS to cut rates tomorrow.
Yet markets expect the MPC to hold again. The reason this time? It doesn’t want to be accused of intervening in the election.
But that’s exactly what it’s doing. In favour of Keir Starmer’s Labour Party.
An interest rate cut would light a rocket under this boring election, which is turning into a procession for Labour despite its underpowered campaign.
Banks and building societies would respond by slashing mortgage rates, in a real lift for borrowers and the housing market.
The stock market would jump – possibly only for a morning but even so – at the sign that brighter times are finally on their way.
Sunak and Chancellor Jeremy Hunt would be able to claim the plan is working, they promised to get inflation down, and they did it.
Of course, the fall in inflation is largely down to retreating food and fuel prices, over which Sunak and Hunt have a little influence.
But since the government of the day gets blamed for everything that goes wrong on its watch, it should be allowed take credit for some of the good things, too.
Yet the BoE seems determined not to give it any. Which seems to me like a clear and direct political intervention.
And it will seem even more political when the BoE meets after the election in August, and cuts interest rates as it surely must.
That will give the incoming Labour administration a real lift. Starmer and shadow chancellor Rachel Reeves will probably claim the credit for it, too. That’s what politicians do.
And the MPC will have handed them that opportunity on a plate.
I understand that the Bank of England is caught between the proverbial rock and a hard place. Whatever it decides tomorrow, will help one party and harm the other.
So what it should do is ignore the election altogether, and think of the British people.
A rate cut would be a real tonic, especially for people struggling to pay their mortgage. And the MPC has to deliver one. Even the European Central Bank has cut rates to just 3.75 percent.
Yet the BoE won’t even cut ours to five percent.
And that’s a political decision. Which it shouldn’t have the authority to make.
