Rachel Reeves‘ claim that Britain’s economy is the weakest it has been since 1945 was branded ‘nonsense’ last night after the Bank of England cut interest rates and hiked growth forecasts.
Policymakers more than doubled UK economic growth predications for this year, undermining the Chancellor’s gloomy assessment of the nation’s finances.
Bank of England governor Andrew Bailey announced a rate cut from a 16-year-high of 5.25 per cent to 5 per cent – less than a month into the new Labour government’s tenure.
It was the first reduction in more than four years, and traders bet there could be two more to come this year.
Rachel Reeves ‘ claim that Britain’s economy is the weakest it has been since 1945 was branded ‘nonsense’ last night after the Bank of England cut interest rates and hiked growth forecasts
Bank of England governor Andrew Bailey announced a rate cut from a 16-year-high of 5.25 per cent to 5 per cent – less than a month into the new Labour government’s tenure
The move is likely to raise fresh questions within the Conservative Party about why former prime minister Rishi Sunak called the election in July rather than waiting for rate cuts to boost his chances of winning.
Shadow chancellor Jeremy Hunt yesterday said Labour had inherited an economy that was ‘on the right track’.
The Bank of England has hiked its growth expectations for the UK economy for this year to 1.25 per cent from 0.5 per cent.
It comes after inflation fell to the 2 per cent target set by the Treasury and Britain’s economy returned to growth in the first two quarters of the year.
Simon French, chief economist at investment bank Panmure Liberum, said the latest data was at odds with Ms Reeves’ claims that Britain is facing the worst economic situation since the end of the Second World War.
‘It is hard to stack up a case that it’s the worst situation since the Second World War,’ he said. ‘I think that core soundbite is quite frankly nonsense.’
About to fall? Capital Economics is forecasting that the Bank of England will cut base rate all the way to 3% by the end of 2025
Policymakers more than doubled UK economic growth predications for this year, undermining the Chancellor’s gloomy assessment of the nation’s finances
Mr French added: ‘Let us not pretend that the Chancellor is being objective – that is a political message.’
On Monday Ms Reeves unveiled doomsday claims that there is a £20billion hole in the public finances.
In a bid to pave the way for tax hikes, she said that Britain’s finances are worse than she feared.
But despite the dire warnings she is planning to give public sector workers an inflation-busting pay rise that will cost £9.4 billion.
Economist Julian Jessop, from think-tank the Institute of Economic Affairs, said: ‘The outlook for the economy this year and next is brightening and this was reflected in the Bank of England’s forecasts.
‘The first in a series of interest rate cuts should help too.’
He said Ms Reeves’ negativity is ‘partially justified’, but added: ‘It remains to be seen whether Labour’s policies are any better.’
Ms Reeves hailed the Bank’s rate cut but blamed the Tories for higher borrowing costs.
‘While today’s cut in interest rates will be welcome news, millions of families are still facing higher mortgage rates after the mini-budget’, she said.
But Mr Hunt said the cut was thanks to Labour inheriting ‘a stronger economy which was on the right track’ from the Tories.
He added: ‘Our concern is that further substantive cuts may now take longer because of inflation-busting public sector pay rises rushed through by the chancellor ahead of the summer.’
Mr Sunak also said the move showed that Labour ‘inherited a strong economy’.
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