The net fiscal loosening of £36bn (1.1% of GDP) in 2029/30 relative to previous plans unveiled by the Chancellor in the Budget means we now expect GDP growth of 1.8% and 1.7% in 2025 and 2026 respectively, compared to 1.5% in both years previously. But looser fiscal policy suggests monetary policy will need to be tighter than otherwise. Indeed, rather than falling to 2.0% in late 2025, we now don’t expect core CPI inflation to ease that far until late 2026. As a result, although we still think that the Bank of England will cut interest rates from 5.00% now to below the low of 4.00% that investors currently anticipate, the clear risk is that rates don’t fall quite as far as our current forecast of 3.00%.
We’ll be discussing the outlook for Bank of England policy in a 20-minute online briefing at 3pm GMT on Thursday 7th November. (Register here.)
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