Keir Starmer gathered his Cabinet today after the Bank of England delivered an alarming assessment of the UK’s ‘Stagflation’ threat.
The PM is holding a special meeting of ministers in Westminster to ‘take stock’ after new forecasts underlined the increasingly grim state of the economy.
In a dramatic announcement yesterday, the Bank halved growth forecasts for this year from 1.5 per cent to 0.75 per cent.
It also warned that pointed out that inflation has eased more slowly than hoped, and is expected to increase ‘materially’ in the first half of this year to 3.7 per cent – with the blame put on Rachel Reeves’ huge Budget tax raid as well as rising energy and water costs.
Experts believe the sharp slowdown and higher borrowing costs have left the Chancellor facing a major hole in the government’s books, which will need to be filled with extra tax increases or spending cuts. The Treasury’s OBR watchdog pencilled in a far higher growth figure of 2 per cent at the time of her fiscal statement in October.
However, any effort to trim spending will be met with strong resistance from Labour MPs who would regard it as ‘austerity’.
Keir Starmer pictured arriving for a special meeting of ministers in Westminster to ‘take stock’ after new forecasts underlined the increasingly grim state of the economy
David Lammy (left) and Angela Rayner (right) were among the ministers seen arriving for the meeting today
The Bank’s updated forecasts suggest that inflation is easing more slowly than hoped, and growth has been ‘weaker than expected’
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The Bank’s Monetary Policy Committee offered some respite for Brits as it cut interest rates from 4.75 per cent to 4.5 per cent in an effort to revive growth.
Two of the nine members voted for a bigger 0.5 percentage point reduction in rates, in a surprise that jangled nerves on financial markets.
The need to kickstart activity outweighed fears that Donald Trump’s trade tariffs will put further upward pressure on prices – something Threadneedle Street uses interest rates to counter.
Without directly criticising the Chancellor, the Bank said growth ‘had been weaker than expected… and indicators of business and consumer confidence had declined’.
Economists warned the UK looked to be headed for ‘Stagflation’, when the economy flatlines even as inflation pressures intensify.
The problem ravaged Britain in the 1970s on a much larger scale, when inflation topped 20 per cent while the economy shrank.
The Pound fell sharply against the US dollar yesterday as markets priced in four interest rate cuts this year.
Sir Keir and Ms Reeves put a brave face on the news, as they scramble to find policies that can drive growth.
The PM said people would have ‘more money in their pockets’.
But Tories condemned the government’s policies for destroying confidence, forcing business to cut jobs and push up prices. Some analysts even warned there is a chance of recession.
Ed Miliband and Peter Kyle smiled as they walked into the meeting this morning
Experts believe the sharp slowdown and higher borrowing costs have left the Chancellor (pictured) facing a major hole in the government’s books
Inflation is due to hit 3.7 per cent this summer before subsiding again
Kemi Badenoch said the BoE report showed Labour had ‘ruined the economy’
Kemi Badenoch said Labour had ‘ruined the economy’ and the situation was ‘worrying’.
Shadow business secretary Andrew Griffith said: ‘Today’s forecasts from the Bank of England are a savage indictment of the 100 days since Labour’s disastrous Budget.
‘Our high streets and businesses are bleeding due to Labour’s choices, but Rachel doesn’t want to know or isn’t listening.’
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: ‘The risks of stagflation are stark. Inflation remains above the Bank’s 2 per cent target and price pressures are piling up, but the economy is stagnating, and business confidence has taken a knock.’
