London Daily

Focus on the big picture.
Friday, Apr 03, 2026

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
Prince Harry and Meghan’s Australia Visit Set to Draw Heightened Global Attention
UK Considers Entry Fees for Overseas Visitors at Major Museums Ahead of 2026 Travel Season
UK Prime Minister and Kuwait Crown Prince Coordinate Security Response After Regional Escalation
Calls Grow to Expand Fully Paid Maternity Leave for UK Teachers Amid Workforce Pressures
UK Secures Tariff-Free Access to US Market in Landmark Pharmaceuticals Agreement
Trump Projects Strength in Critique of UK Leadership and Naval Readiness
UK FinTech Setback as VibePay and Smartlayer Cease Operations Amid Funding Pressures
UK Leads Global Coalition of Over Forty Nations to Address Strait of Hormuz Crisis
UK Firms Urged to Accelerate Preparation as New Sustainability Reporting Rules Take Shape
UK Moves Rapid Sentry Air Defence System to Kuwait After Drone Strike Escalation
Transatlantic Relations Tested as UK Seeks Balance While Trump Reshapes Strategic Approach
Trump’s Strategic Pressure on UK Seen as Push for Stronger Alignment and Fairer Terms
UK Focuses on Trade Finance to Secure Critical Materials for Defence and Energy Sectors
Majority of UK Businesses Hit by Middle East Conflict While Confidence Holds Firm
UK Royal Navy Faces Renewed Scrutiny as Debate Intensifies Over Capability and Readiness
Reform UK Faces Mounting Distractions as Policy Agenda Struggles to Gain Traction
Investigation Launched Into Northern Cyprus IVF Clinics After UK Families Receive Incorrect Sperm
International Meeting Issues Unified Call to Safeguard Navigation Through Strait of Hormuz
Potential Strait of Hormuz Closure Raises Concerns Over UK Food and Medicine Supply Chains
UK Leads Coalition of Over Forty Nations Urging Iran to Reopen Strait of Hormuz
UK Secures Tariff-Free Access for Medicines in Landmark US Pharma Trade Agreement
King Charles III Invited to Address Joint Session of U.S. Congress in Rare Diplomatic Honor
Debate Grows Over Whether Expanded North Sea Drilling Can Reduce UK Energy Bills
UK Faces Heightened Risk of Jet Fuel Shortages, Airline Chief Warns
UK Ends Police Investigations into Lawful Social Media Posts After Review Finds Overreach
Abramovich Moves to Establish Charity for Frozen Chelsea Sale Proceeds Amid UK Dispute
Starmer Reaffirms NATO Commitment While Responding to Trump’s Strategic Critique
UK Aid Reductions Raise Fears of Severe Human Impact Across Parts of Africa
UK Signals Renewed Push for EU Cooperation as Iran Conflict Reshapes Security Landscape
Bank of England Signals Caution as Bailey Advises Markets Against Expecting Rate Hikes
UK to Convene Global Coalition to Restore Shipping Through Strait of Hormuz
Trump Signals Possible NATO Reassessment, Emphasizes Stronger U.S. Strategic Autonomy
Australia Joins British-Led Efforts to Reopen Strait of Hormuz Amid Escalating Tensions
King Charles Plans US State Visit as UK Strengthens Ties with Trump Leadership
UK Regulator Launches Investigation Into Microsoft’s Business Software Practices
Kanye West Set for High-Profile Return to UK Stage at Wireless Festival
Trump Presses Europe to Strengthen Commitment as Iran Conflict Escalates
UK to Deploy Additional Troops to Middle East Amid Rising Regional Tensions
UK Authorities Face Claims of Heavy-Handed Measures in Monitoring Released Pro-Palestine Activists
Trump Calls on UK to Secure Its Own Energy as Iran Conflict Intensifies
Nigel Farage Declines Invitation to UK Conservative Conference Led by Liz Truss
Trump Warns Allies to Take Responsibility as Rift Deepens with UK and France Over Iran Conflict
How Britain’s Prime Minister Controls U.S. Bomber Access in Escalating Iran Conflict
Trump Urges Allies to Secure Their Own Oil Supplies as Hormuz Crisis Disrupts Global Energy
Russia Expels British Diplomat as UK Pushes Back Against Pressure
White House App Faces Scrutiny After Claims of Continuous User Location Tracking
BBC Faces Scrutiny Over Allegations of Paid Content Linked to Saudi Arabia
UK-France Coastal Patrol Agreement Nears Breakdown Amid Migration Pressures
UK Police Detain Pro-Palestine Activist Again Weeks After Bail Release
FTSE 100 Advances as Energy and Mining Shares Gain Amid Middle East Tensions
×