- Bank of England announced interest rates will hold at 5.25% following another month of meagre economic growth.
- Head of ACCA Cymru/Wales, Lloyd Powell, points out that this holding pattern is a sign of a stagnant UK economy.
The announcement from the Bank of England today (2nd November 2023) that interest rates will be held at 5.25% will be unsurprising, if slightly disappointing, news for many businesses and customers alike.
Lloyd Powell, head of ACCA Cymru/Wales, shared his thoughts on the held interest rates, and what it means for the UK economic outlook:
“The previous month’s hold of interest rates at 5.25% was a welcome and necessary breather after 14 consecutive rises. However, it now appears that the Welsh economy is stuck holding its breath, awaiting some kind of economic sign to help kickstart the reduction in interest rates.
“This holding pattern or a ‘wait and see’ attitude is something ACCA has seen translate to the feedback from accountants about the businesses they support. A sense of “perma-crisis” has left businesses hesitant to invest, delaying decisions until a clearer picture of the prospects for the UK economy emerges. It seems inevitable that further action, in addition to the Bank’s single monetary policy lever, will be required. Undoubtedly, the Chancellor has an important Autumn Statement ahead.
“Without decisive action from the government and Bank of England this winter, Welsh businesses and customers will struggle to cope with continuing high rates of interest and inflation, further damaging an already weakened economy as people spend less and businesses are unable to invest or expand.”
The Bank of England kept interest rates unchanged at 5.25% at today’s meeting. Three members dissented from the majority and voted for a quarter point increase in rates. The decision was not a surprise given the weakness of the economy. But after a very finely balanced decision at the September meeting, the decision not to hike nonetheless provides a bit of respite to businesses and households.
Jonathan Ashworth, chief economist at ACCA, shared his thoughts on the decision:
“A weakening economy, a loosening labour market, and expectations for a sharp fall in headline inflation over coming quarters, looks to have persuaded the majority of the Monetary Policy Committee to eschew policy tightening once again, despite fast wage growth and the fact that inflation is currently more than three times its target level.
“The Bank of England’s forecasts and commentary suggest that monetary policy is likely to remain restrictive for an extended period. Against such a backdrop, they are expecting the economy to remain very weak over coming years, with little, if any, growth expected in 2024.
“All in all, a very challenging period lays ahead for business amid extremely weak growth and high borrowing costs. And given the difficult fiscal backdrop, a significant amount of budgetary relief, which would be welcomed by business, is unlikely in the upcoming Autumn Statement. The downside risks from the global economy also look very elevated”.