Reeves hit by growth gloom as Bank cuts interest rate

Rachel Reeves has been dealt a further blow in her bid to fulfil Labour’s primary mission of reigniting economic growth, as a downgraded forecast yesterday overshadowed news of an interest rate cut.

- DAVID MADDOX KATE DEVLIN

The Bank of England has halved its projections for growth this year because of the impact of the chancellor’s autumn Budget, and inflation is now expected to rise higher than previously estimated, to 3.7 percent. The Bank warned that more people will be out of work, as firms swallow higher taxes and an increase to the minimum wage.

Ms Reeves, whose future as chancellor is being questioned over her record in the first seven months of the Labour government, was warned the “putrid” new growth forecast “needs to be a wake-up call”.

However, she got a much-needed boost as the Bank announced a cut in interest rates from 4.75 percent to 4.5 percent. As well as providing relief for businesses, the cut will help thousands of people with mortgages who will see their monthly payments fall. A homeowner with a £300,000 tracker mortgage will see monthly repayments fall around £43 from £1,710 to £1,667.

It was the first piece of good news in some time for a chancellor who has been beset by poor economic figures since taking office. That trend continued yesterday as the Bank downgraded its growth forecast for the UK economy to 0.75 percent for this year, down from previous estimates of 1.5 percent, before accelerating again in 2026 and 2027. It projects that GDP fell 0.1 percent in the fourth quarter of 2024 and will rise by just 0.1 percent in the first quarter of 2025.

Paul Johnson, director of the Institute for Fiscal Studies, called the update a “pretty pessimistic forecast”.