We’re now getting a clearer picture of the macroeconomic outlook and the Bank of England’s (BoE) expected paths for inflation and bank rate. The main elements of this are that we should avoid a recession, unemployment will rise, gently, over the next 18 months or so to around 4.5 per cent, growth will be weak until 2026, and inflation will take much longer to suppress than previously estimated.
The central bank may feel encouraged having watched the risk of recession recede despite rate hikes, allowing it to rip up its previous gloomy forecast of eight quarters of economic decline. And it knows that many households remain insensitive to more costly borrowing. But it would be foolish to think that slow transmission means it can continue to press down on the brake of interest rates with nothing to lose.
Public anger is growing over the length of the crisis, reflected in the hostile reaction to the recent admonition from the BoE’s chief economist that we all have to accept we are worse off, and in the frequent and widespread resentful comments from all corners of the media over the continuing cost of living squeeze. Claims include that the BoE’s interest rate policy has ‘failed’, that soaring prices are contributing to a catastrophic mental health crisis and driving people to steal and opt out of their pension plans. It is also reflected in the ongoing public sector strikes with millions of working days lost to strike action since the start of 2022.