We’ve just seen a rare burst of economic sunshine from the Bank of England and its Governor, Andrew Bailey.
After several months sitting on their hands, waiting for inflation to subside, they have delivered a quarter-of-a-percentage-point cut in interest rates, reducing borrowing costs to 4 per cent.
It would be nice to think the decision was a declaration of confidence in Britain’s future. But it is not.
Rather it is the desperate response of a Governor and his posse of interest rate-setters who, faced with a tanking British economy and stubbornly high inflation, have no idea what else to do.
The reality is that Prime Minister Keir Starmer’s tax-and-spend agenda and the greed of disruptive unions in the public sector are gutting the British economy.
Some 276,000 jobs have been jettisoned since last October’s Budget. Firms are still reeling from the rise in employers’ National Insurance Contributions (NICs). Labour is not working.
That’s why, with output barely growing and business suffering from the £40billion of tax increases that Chancellor Rachel Reeves imposed last year, the Bank wants to give whatever lift it can to consumers and commerce.
Yes, a drop in borrowing costs should make home-buying and car purchases cheaper. It should also be easier for companies to borrow and invest in the country’s future.
The cut in interest rates is an act of desperation from Bank of England Governor Andrew Bailey who is faced with a tanking British economy, writes Alex Brummer
If growth, as the Chancellor says, is the Government’s priority, then she is going about it in the most cackhanded way imaginable, writes Alex Brummer
But this is no time to hang out the bunting because this rate cut might open the door for yet more inflation.
Headline prices jumped from 3.4 to 3.6 per cent in June – way above the two per cent target. And such is the uncertainty that the Bank’s Monetary Policy Committee was split five to four on yesterday’s cut.
Two rounds of voting were needed before reaching even this narrow decision.
The fact is, we’re in a mess – and it’s thanks to the grotesque incompetence of a government which has failed to deliver growth or the promised cuts to the out-of-control welfare bill.
The prospect of another tax-raising budget in the autumn will only further damage confidence.
If growth, as the Chancellor says, is the Government’s priority, then she is going about it in the most cackhanded way imaginable. The better-off are already fleeing Britain in record numbers.
Analysis by the Financial Times has found that since Keir Starmer’s Government raised capital gains and inheritance taxes and abolished favoured treatment for residents domiciled overseas (the so-called ‘non-doms’), some 3,790 company directors have fled the country.
Wealth managers reckon that at least 16,500 millionaires have left the United Kingdom or are in the process of doing so.
These are precisely the individuals and directors capable of investing in Britain – in medicine, in the creative industries and new technologies.
Wednesday’s bombshell analysis from the authoritative National Institute for Economic and Social Research (NIESR) underlined the speed of the UK’s descent into chaos.
As it points out, if Reeves doesn’t change her ‘iron-clad’ fiscal rules – which involve an ambitious reduction in borrowing – then the nation could face a financial shortfall of some £41.2billion.
Some are urging Mrs Reeves to avoid the problem by, for example, extending the time scale for balancing the Government budget.
Yet that would be perilous for the market in government bonds. The Treasury is already obliged to pay stiff interest rates to bond holders (to persuade them to underwrite our ballooning debt).
Breaking Reeves’s supposedly ‘iron-clad’ promises could make matters worse. It is widely assumed, then, that the only way out is to further increase taxes – already at a record post-war high.
Manifesto promises mean that three of the biggest revenue raisers – income tax, VAT and National Insurance employees – are ruled out.
So, it will be back to our old friends the stealth taxes and, in particular, the prospect that the ‘thresholds’ at which we pay additional tax will be frozen yet again.
Even the current freeze, inherited from the Tories, is pushing millions of middle-income workers into higher tax bands.
Ever higher taxes are a sledgehammer blow to growth – and will condemn the nation to a vicious cycle of tax and spend which can only lead to penury.
This economic misery is thanks in no small measure to Sir Keir’s cowardly U-turn on welfare cuts. And that is where our attention should properly be focused.
An attentive Daily Mail reader recently sent me a newspaper chart from Labour Chancellor Hugh Gaitskell’s 1951-52 budget.
It showed that, back then, our spending on welfare, pensions, health and education was just £1,249million – the equivalent of a still-modest £54billion at today’s prices.
Compare this to the 2025-26 financial year when the country is projected to spend £379billion on the welfare budget alone.
A further £277billion will be ploughed into the NHS.
Chronic dependency on the state is the real reason we face more stealth taxes and a fresh assault on business, enterprise and entrepreneurship.
By lowering interest rates, the Bank of England has done little more than pour balm on a gaping wound.
It will do nothing to resolve our catastrophic addiction to overspending – which sits at the very heart of our woes.
