Signs of returning inflation give Bank of England dilemma on interest rates

The Bank of England is facing a dilemma amid signs of returning inflationary pressures, even as businesses cut jobs at the fastest rate in four years after Rachel Reeves's autumn budget.

- Richard Partington

Before a crunch interest rate decision on 6 February, an influential business survey showed economic growth picked up slightly at the start of 2025, led by Britain's dominant services sector.

However, the flash purchasing managers' index (PMI) for January from S&P Global, which is closely monitored by the Bank and the Treasury, signalled that the average prices charged by UK private sector firms are rising at their fastest pace for 18 months.

Employers cut jobs at the fastest pace since the height of the Covid pandemic in 2021. Excluding the pandemic, the rate of job-cutting was the highest since the global financial crisis in 2009.

Adding to the pressure on Labour after a challenging start to the year marked by turbulence in financial markets, separate figures showed retail sales continued to fall in January after a disappointing Christmas, and consumer confidence fell to the lowest level since late 2023.