Bank of England May Ease Interest Rates Next Month, Economists Warn Labour Government’s Impact

The Bank of England is considering easing interest rates as early as next month, a move that could bring relief to homeowners facing higher mortgage rates. However, economists are warning that Prime Minister Keir Starmer’s new Labour government may slow down the shift away from the highest borrowing costs in 16 years.

Investors are already pricing in a more than 60% chance of a rate cut at the central bank’s next meeting on August 1. This would be the first cut since the start of the pandemic and could help stimulate economic growth.

Economists are divided on the fiscal policies that Starmer’s Chancellor of the Exchequer, Rachel Reeves, will adopt. Reeves has indicated a focus on guiding the economy through uncertain times and building prosperity for working people. However, the extent of fiscal easing and wage boosts could potentially lead to inflation, limiting the scope for future rate cuts.

Governor Andrew Bailey and the Monetary Policy Committee will be closely monitoring the government’s budget and spending review in the autumn to gauge the scale of Labour’s tax and spending plans. The outcome of these decisions could impact the BOE’s monetary policy outlook.

There is a debate among economists on how quickly the BOE might act, with some anticipating a rate cut in August while others expect one later in the year. The first clues on the bank’s decision-making will come from speeches by key members of the Monetary Policy Committee.

Overall, the new Labour government’s approach to fiscal policy, wage growth, and migration could have significant implications for the economy and the BOE’s monetary policy decisions in the coming months.