If the Bank of England raise interest rates, Starmer and Reeves must do the unthinkable ...Middle East

The OBR had already halved its growth forecast for this year, but with share prices tumbling after Trump’s tariff wars, both business investment and consumer spending is likely to fall – especially if, as anticipated, prices rise in response.

The Bank of England’s base rate remains high at 4.25 per cent, but the consensus was that will modestly reduce over the rest of the year. But with inflation now expected to rise more sharply, the Bank could be tempted to increase rates to meet its 2 per cent inflation target. That would be a mistake that could tip an already fragile economy into recession.

Post-Covid there was a global rise in inflation as societies unlocked and production took a while to meet renewed demand. There was also, as economists like Isabella Weber pointed out, a wave of profiteering as corporations sought to rebuild their balance sheets.

The Bank of England responded to the post-Covid inflation rise by hiking interest rates – further damaging consumer finances by increasing the cost of mortgages and personal debt. Despite weak consumer demand and low growth, the Bank of England was bullish on increasing interest rates in 2022, with Governor Andrew Bailey saying “inflationary pressures will require a stronger response” and he “will not hesitate to raise interest rates”. And he was true to his word, raising interest rates from 2.25 per cent to 5.25 per cent, sending the economy into recession at the end of 2023.

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Pushing up interest rates took demand out of an already weak economy, hiked mortgage costs for millions of people, meaning they had less to spend in the real economy. Poverty rose, while banks recorded their best ever year for profits.

Post-Covid inflation didn’t come down until a year after the Bank increased interest rates – and that was arguably down to the reduction in energy costs.

This is welcome news, but if the Bank of England does the opposite and starts making the same mistakes again, Starmer and Reeves must think the unthinkable and end the Bank of England’s independence.

Andrew Fisher is a former executive director of policy for the Labour Party

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