Mood-boosting rate cut is a fillip for Reeves but leaves future uncertain
Thursday’s interest rate cut to 4.25% is the fourth in a run of reductions that kicked off last August.It represents a fillip for Rachel Reeves, who will hope it helps revive the feelgood factor for gloomy British consumers.The Bank of England’s nine-member monetary policy committee (MPC) has passed judgment on the impact of Donald Trump’s trade war for the UK – and expects modestly weaker growth and inflation to be the result.Lower global energy prices as markets anticipate weaker demand, and cheaper Chinese imports, are likely to bear down on costs, the MPC has judged.
And the trade war is likely to shave 0.3% off (already weak) growth in three years’ time, reassuring them that they have a little more space to cut rates.Inflation, previously predicted to peak at 3.7% later this year, now hits a still-painful 3.5%, before falling back.
“The current overall impact of trade developments on the UK is … more likely to be disinflationary than inflationary,” the MPC suggests,At the same time, it finds little evidence that Reeves’s widely attacked increase in the rate of employer national insurance contributions (NICs), which came into force last month, has so far led to the mass layoffs some lobby groups predicted,“The impact of higher NICs on employment appears to have been fairly small to date,” the MPC said,It continues to expect firms to use a combination of weaker wages and higher prices, alongside slower hiring, to pass on the costs,While the chancellor may have hoped the Bank would send a clear message that more confidence-boosting rate cuts are to come, however, the MPC has instead muddied the waters dramatically, by splitting three ways, on the right way forward.
The more dovish stance of two members, Swati Dhingra and Alan Taylor, who backed a half-point reduction, was not surprising.More unexpected, however, were the two votes from the Bank’s chief economist, Huw Pill, and external member Catherine Mann, against any reduction at all.This caution was reflected in the Bank’s continued use of the carefully drafted phrase “gradual and careful” to describe its approach in the coming months.As if these evident divisions about the way forward did not speak for themselves, the Bank also made a point of insisting that “monetary policy is not on a pre-set path”.In other words, where rates will be in six months’ time is anyone’s guess.
Sign up to Business TodayGet set for the working day – we'll point you to all the business news and analysis you need every morningafter newsletter promotionThe quarterly monetary policy report, published alongside Thursday’s rate cut decision, included two possible scenarios: one in which the downbeat mood picked up in recent surveys hits growth harder than feared, driving down inflation; and another in which the bout of higher inflation expected in the summer drives up wages and prices through “second-round effects”.With mortgage and petrol costs on the slide, and Reeves determined to bear down on public sector pay, it is hard to imagine the bout of bumper pay rises that might cause these effects to materialise – but some MPC members clearly remain scarred by the dramatic post-Covid run-up in inflation.Meanwhile, the Bank made clear that the US-UK trade agreement, which was confirmed later on Thursday, was unlikely to be a significant boost to growth in itself.The MPC believes the modest 0.3% hit it forecasts to UK GDP as a result of Trump’s “Liberation Day”, results mainly from the effects of a global trade war, not UK-specific tariffs.
But Labour will hope the combined effect of a mood-boosting rate cut, and the lifting of the clouds that have hung over key sectors – including cars and steel – since Trump’s tariff blitz, will put a much-needed floor under confidence.
Disability benefit cuts impossible to support, 42 Labour MPs tell Starmer
More than 40 Labour MPs have warned the prime minister that planned disability cuts are “impossible to support” and have called for a pause and change in direction.The letter from parliamentarians spanning the new intake and veterans, and from the left and right of the party, sets Keir Starmer up for the biggest rebellion of his premiership when the House of Commons votes on the measures next month.There has already been widespread concern among Labour MPs about proposed changes including a significant tightening of eligibility for personal independent payments (Pips), saving about £5bn annually.They would also involve cuts or freezes to incapacity benefits for people who apply for universal credit but are judged unfit to work. According to internal Department for Work and Pensions (DWP) forecasts, the planned disability benefit cuts would affect 700,000 families who are already in poverty
New UK-US trade deal is a relief for Starmer but doubts, and tariffs, remain
Thursday’s trade agreement between the US and the UK fell far short of the superlatives heaped on it in Donald Trump’s excruciating televised phone call with Keir Starmer. But it is worth having, nevertheless.As Starmer made clear by appearing in front of an audience of Jaguar Land Rover workers in Solihull, reducing the 27.5% tariff on 100,000 car exports will come as a mighty relief for that industry.Steel and aluminium tariffs will also go completely, according to the UK side – though the fact sheet from the White House stopped short of saying that explicitly, instead saying a “new trading union” would be created in these two sectors
UK politics: Tariffs cut on UK cars, steel and aluminium in US trade deal, says Starmer – as it happened
Keir Starmer is at a Jaguar Land Rover factory. Summing up the deal, he says:This is a deal that will protect British businesses and save thousands of jobs In Britain, really important, skilled, well paid jobs. It will remove tariffs on British steel and aluminium, reducing them to zero. It will provide vital assurances for our life sciences sector, so important to our economy, and grant unprecedented market access for British farmers without compromising our high standards.And he says the deal means US tariffs on cars from the UK will be cut from 27
Cars, steel, beef and films: the key points of the US-UK trade deal
The UK and US have announced a new trade deal, or at least some elements of it, following a slightly chaotic transatlantic speaker phone call between Keir Starmer and Donald Trump.So what does it involve – and what was left out? Here is what we know and don’t know.With Starmer heading to the Jaguar Land Rover plant in the Midlands to herald the announcement, this was expected to be a major part of the deal, and it is.Tariffs for UK cars imported into the US will be cut from 27.5% to 10%, up to a maximum of 100,000 cars a year, close to total exports last year
Reform’s success shows how little Labour has offered voters | Letters
Polly Toynbee is right that there will be far worse to come for Labour if it carries on down its road of making the poorest yet poorer (The lesson for Labour? Until it can improve local lives and stop fearing Farage, more losses are coming, 6 May). She says: “They will be challenged by Reform UK in towns such as Barnsley.” Barnsley is the 38th most deprived local authority in England. Almost a quarter of its children live in poverty. Reform is a party with no poverty-alleviation policies and a “contract” with voters that states: “All job seekers and those fit to work must find employment within 4 months or accept a job after 2 offers
Tell us: how will Labour’s planned disability welfare cuts affect you?
The Labour government has proposed £4.8bn in cuts to disability welfare payments, with a House of Commons vote expected in June.The move would impact about 3 million households and plans, among other things, to tighten eligibility for personal independence payments (Pip) and change universal credit’s health element – such as halving it for new claimants, freezing it for existing recipients, and consulting on raising the minimum age to 22 from 18.We want to hear from you. How will your household be affected by Labour’s planned cuts to disability welfare payments? How would this impact your situation? What are your views on Labour’s proposals?You can tell us how Labour's proposed welfare cuts might affect you by filling in the form below
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