London Daily

Focus on the big picture.
Wednesday, Mar 25, 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
Trump Signals Frustration with UK Leadership Amid Diverging Approaches to Iran Conflict
UK Government Takes Control of Hunterston B as Landmark Nuclear Decommissioning Begins
UK Public Inflation Expectations Jump Sharply in March, Raising Pressure on Bank of England
UK Ministers Warn Expanded North Sea Drilling Would Deepen Exposure to Global Energy Volatility
Delayed UK Defence Investment Plan Leaves Suppliers Under Severe Financial Strain
Can Iran Strike the UK? Assessing the Real Military Threat as Conflict Escalates
Sanctioned Iranian Banker Linked to Luxury Marbella Villa Through UK Corporate Structure
Casey Bloys Navigates HBO Max UK Launch, Paramount Integration and Industry Buzz Over Netflix Meeting
Iran Conflict Sparks Sharp Turbulence in UK Mortgage Market, Reaching Pandemic-Era Disruption Levels
Major Donor Urges University of Kentucky to Reconsider Mitch Barnhart’s Post-Retirement Role
United Kingdom Moves to Lead International Effort to Reopen Strait of Hormuz
UK Police Investigate Targeted Attack on Jewish Ambulance Vehicles
UK Police Investigate Targeted Attack on Jewish Ambulance Vehicles
Senior UK Advocate Criticises Barnhart Retirement Appointment, Calls for Reconsideration
UK Finds No Evidence of Direct Iranian Threat to Britain, Says Prime Minister Starmer
Assessing Iran’s Strike Capability and the UK’s Readiness Amid Rising Tensions
NATO Unable to Confirm Iran’s Role in Strike on UK-US Base as Tehran Denies Involvement
University of Kentucky’s Youling Xiong Receives SEC Faculty Achievement Award for 2026
Trump Highlights Satirical Portrayal of UK Leadership Amid Talks with Prime Minister Starmer on Iran Conflict
Trump Highlights Satirical Portrayal of UK Leadership Amid Talks with Prime Minister Starmer on Iran Conflict
UK Fuel Prices Surge Toward Crisis Levels as Experts Warn of Further Sharp Increases
UK Fuel Prices Surge Toward Crisis Levels as Experts Warn of Further Sharp Increases
Duchess of Sussex Secures ‘As Ever’ Trademark Rights in Australia Ahead of High-Profile Visit
UK Reaffirms Security as Officials Reject Claims of Immediate Iranian Missile Threat
Rising Middle East Tensions Spark ‘Trumpflation’ Debate Over Impact on UK Households
UK Minister Says No Evidence Iran Can Strike Europe Despite Heightened Warnings
British-Iranians Voice Safety Concerns to Authorities as Regional Conflict Intensifies
Confirmed Meningitis Cases Linked to Kent Outbreak Revised Down to Twenty
UK Government Sees No Evidence Iran Can Strike London Amid Rising Regional Tensions
Debate Grows Over Recognition of Indigenous Cultural Icons in the United Kingdom
Iran Missile Launch Toward Diego Garcia Raises Questions After Failed Strike on US–UK Base
Donald Trump Amplifies Viral Satirical Clip Highlighting UK–US Political Dynamics
UK Satirical Show Draws Attention with Sketch Referencing Trump and Prince Andrew
Meghan Markle’s Possible UK Return Sparks Renewed Attention on Sussex Role
Starmer Convenes Urgent Talks on Cost-of-Living Pressures Linked to Iran Conflict
Starmer Convenes Urgent Talks on Cost-of-Living Pressures Linked to Iran Conflict
UK Investors Eye Bargain Shares Ahead of ISA Deadline Amid Market Volatility
UK Investors Eye Bargain Shares Ahead of ISA Deadline Amid Market Volatility
Northern Lights Expected Over UK Skies Tonight Amid Strong Solar Activity
UK Condemns Iran Missile Strike and Warns Against Threats to British Personnel
UK Warns of Global Flight Disruptions as Iran Conflict Escalates Under Trump’s Leadership
UK Condemns Iran After Missile Strike Targets Strategic Diego Garcia Base
Deadly Meningitis Outbreak in UK Reinforces Urgency of Vaccination Campaigns
Iran Launches Long-Range Missile Strike on Remote US-UK Base, Signaling Expanded Reach
Iran Launches Long-Range Missile Strike on Remote US-UK Base, Signaling Expanded Reach
UK Rules Out Cyprus Base Role in Joint US Self-Defence Framework
UK Ends Hereditary Peerage Rights in Parliament in Historic Constitutional Reform
Lord Walney Warns of Expanding Iranian Influence Networks Within the United Kingdom
Iranian National Among Two Arrested After Attempt to Access UK Nuclear Submarine Base
Deregulation, Artificial Intelligence, and Fraud Laws Reshape UK Financial Services Landscape
×