The Bank of England this week is likely to forecast a bleak period for the UK economy in the months leading up to the next general election, adding to worries for Prime Minister Rishi Sunak’s government.
Money markets have recently pared bets on further monetary-policy tightening following signals from the the European Central Bank and US Federal Reserve that rate hikes may have already peaked. The Fed is set to hold interest rates steady after a policy meeting this week. Most economists expect a cut in the GDP forecast next year from 0.5%, and many expect the BOE to lower this year too.
For the MPC, this raises difficulties with maintaining its “Table Mountain” guidance on the path for interest rates — designed to imply that rates would stay high until inflation was under control. Already, political pressure from some members of Parliament is mounting for the BOE to ease off on its restrictive interest rate policy to prevent a contraction in the economy.
In September, the MPC’s minutes repeatedly referred to the Purchasing Managers’ Index from S&P Global, which had fallen sharply on a first estimate. This almost certainly contributed to the BOE’s “knife-edge decision to keep the Bank rate unchanged,” Investec’s UK economist Sandra Horsfield said. Israel-Hamas war: UN calls for more aid to be allowed into Gaza amid 'collective punishment' blockade
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