London Daily

Focus on the big picture.
Saturday, Jul 12, 2025

The Bank of England’s message is upbeat, but there’s a sting in the tail

The Bank of England’s message is upbeat, but there’s a sting in the tail

Analysis: a hawkish tone signals that at some point businesses will need to manage with less support
Unemployment has peaked. The pick-up in inflation will be temporary. All the ground lost during the biggest slump in 300 years will be regained by the end of the year. All in all, it was a pretty upbeat message from the Bank of England as it provided its quarterly update on the state of the UK economy.

Albeit one with a sting in the tail, because the eight members of Threadneedle Street’s monetary policy committee (MPC) wanted to send the message that they see the day coming when consumers and businesses will have to get by with less policy help.

Some MPC members think their previously announced conditions for the removal of some of the emergency stimulus provided since early last year have already been met, adding to the sense that the Bank is becoming more worried about inflation.

Despite the relatively hawkish language, however, only one member of the MPC thought immediate action was necessary, and it will be some time before the Bank actually gets round to what the governor, Andrew Bailey, called a “modest” tightening.

The Bank had little choice but to talk tough. Three months ago it predicted that the annual inflation rate would be 2.5% by the end of the year; after a summer of global supply-chain disruption and labour shortages it has raised that forecast to 4%. You can’t ignore that sort of thing when your statutory duty is to hit a 2% inflation target.

Threadneedle Street’s view is that the economy is bouncing back more quickly from the current crisis than it did from the financial crash of 2008. It thinks unemployment has already peaked at 4.8% and that the end of the furlough will not lead to a higher jobless rate. As a result, its estimate of the long-term damage to the economy is small (1% of national output), and has been revised down since May.

Yet if all that makes an argument for immediate action, there are reasons why the Bank is adopting a wait-and-see approach. For a start, it is a bit premature to declare the war against Covid over. What’s more, the end of the furlough and the phasing out of Treasury support might have more of a negative effect than the Bank is expecting. Finally, if the Bank is right about the absence of long-term scarring then there will be less inflationary pressure as demand picks up post lockdown and hence less of a need to act.

The first step towards what might be called the Bank’s new normal will be the end to bond purchases at the end of the year. It will only start whittling down its £895bn stock of assets when it has raised the official interest rate from 0.1% to 0.5% – something the City thinks could happen by the middle of next year if the economy performs as expected. That, though, is a far cry from the decade before the financial crash, when interest rates averaged 5%. The new normal will be nothing like the old normal.
Newsletter

Related Articles

0:00
0:00
Close
Reparations argument crushed
Rainmaker CEO Says Cloud Seeding Paused Before Deadly Texas Floods
A 92-year-old woman, who felt she doesn't belong in a nursing home, escaped the death-camp by climbing a gate nearly 8 ft tall
French Journalist Acquitted in Controversial Case Involving Brigitte Macron
Elon Musk’s xAI Targets $200 Billion Valuation in New Fundraising Round
Kraft Heinz Considers Splitting Off Grocery Division Amid Strategic Review
Trump Proposes Supplying Arms to Ukraine Through NATO Allies
EU Proposes New Tax on Large Companies to Boost Budget
Trump Imposes 35% Tariffs on Canadian Imports Amid Trade Tensions
Junior Doctors in the UK Prepare for Five-Day Strike Over Pay Disputes
US Opens First Rare Earth Mine in Over 70 Years in Wyoming
Kurdistan Workers Party Takes Symbolic Step Towards Peace in Northern Iraq
Bitcoin Reaches New Milestone of $116,000
Biden’s Doctor Pleads the Fifth to Avoid Self-Incrimination on President’s Medical Fitness
Grok Chatbot Faces International Backlash for Antisemitic Content
Severe Heatwave Claims 2,300 Lives Across Europe
NVIDIA Achieves Historic Milestone as First Company Valued at $4 Trillion
Declining Beer Consumption Signals Cultural Shift in Germany
Linda Yaccarino Steps Down as CEO of X After Two Years
US Imposes New Tariffs on Brazilian Exports Amid Political Tensions
Azerbaijan and Armenia are on the brink of a historic peace deal.
Emails Leaked: How Passenger Luggage Became a Side Income for Airport Workers
Polish MEP: “Dear Leftists - China is laughing at you, Russia is laughing, India is laughing”
BRICS Expands Membership with Indonesia and Ten New Partner Countries
Weinstein Victim’s Lawyer Says MeToo Movement Still Strong
U.S. Enacts Sweeping Tax and Spending Legislation Amid Trade Policy Shifts
Football Mourns as Diogo Jota and Brother André Silva Laid to Rest in Portugal
Labour Expected to Withdraw Support for Special Needs Funding Model
Leaked Audio Reveals Tory Aide Defending DEI Record
Elon Musk Founds a Party Following a Poll on X: "You Wanted It – You Got It!"
London Stock Exchange Faces Historic Low in Initial Public Offerings
A new online platform has emerged in the United Kingdom, specifically targeting Muslim men seeking virgin brides
Trump Celebrates Independence Day with B-2 Flyover and Signs Controversial Legislation
Boris Johnson Urges Conservatives to Ignore Farage
SNP Ordered to Update Single-Sex Space Guidance Within Days
Starmer Set to Reject Calls for Wealth Taxes
Stolen Century-Old Rolls-Royce Recovered After Hotel Theft
Macron Presses Starmer to Recognise Palestinian State
Labour Delayed Palestine Action Ban Over Riot Concerns
Swinney’s Tax Comments ‘Offensive to Scots’, Say Tories
High Street Retailers to Enforce Bans on Serial Shoplifters
Music Banned by Henry VIII to Be Performed After 500 Years
Steve Coogan Says Working Class Is Being ‘Ethnically Cleansed’
Home Office Admits Uncertainty Over Visa Overstayer Numbers
JD Vance Questions Mandelson Over Reform Party’s Rising Popularity
Macron to Receive Windsor Carriage Ride in Royal Gesture
Labour Accused of ‘Hammering’ Scots During First Year in Power
BBC Head of Music Stood Down Amid Bob Vylan Controversy
Corbyn Eyes Hard-Left Challenge to Starmer’s Leadership
London Tube Trains Suspended After Major Fire Erupts Nearby
×