The Bank of England is crazy to reduce interest rates

[LargeDeviation]

Services inflation is still rampant at over 5%.

The economy is far stronger than the Bank of England's own expectations.

The labour market is extremely tight.

On top of the monetary factors, there is massive fiscal loosening. Rachel Reeves is doling out bumper pay increases to the public sector, which will be highly inflationary.

Yet Andrew Bailey feels it is the right time to cut rates.

The Bank of England were hopelessly late in raising rates in the first place, leading to far higher inflation and eventually interest rates than our competitors. Now they are too early to cut rates, which will lead to far stickier inflation over the next few years, and having higher interest rates for much longer than required overall.

Their forecasting is hopeless, persistently underforecasting inflation.

Andrew Bailey should resign.

Mine will as it tracks the base rate. Appreciate not everybody will be in that position though.

What a coincidence that the Bank of England cuts rates just as Labour are elected...

That’s bonkers. The establishment is not out to get the Tories.

For now, I'm miffed on a personal level as my new 5-year fixed mortgage kicked in today. We have had a potential rate drop dangled in front of us for months, but the day I can't change anything anymore is the day it drops. Bloody typical. At the same time, house prices have dropped around 10k from their peak a few months ago, so my LTR now also looks shite despite overpaying every month.

Having had my little rant (and I appreciate it's only one person, but I will by far not be the only one who got kicked out of a nice, low and very affordable rate into this crap this year), I don't think the rates will drop significantly any time soon and may rise again.

The BBC state that one of the driving factors for the drop in inflation is energy prices - well, those are going up again from October. Fuel and food prices are still at a high. Most everyday living costs are, but it also doesn't make sense to save unless you can afford to save thousands (which, again, the majority of people cannot) where interest rates generally become decent.

Together with now reasonably high wage rises across different sectors (I expect that the junior doctors' and teachers' pay rises will kickstart a few others), Christmas spending coming soon, colder months which mean more indoor spending and what I anticipate to be an increasing fuck-it attitude by the squeezed middle and older people where saving appears to be penalised, I can foresee a big increase in inflation again.

Can someone please advise do you think the exchange rate will be better now £ to $ please

I agree with much of your argument, OP, but I slightly disagree about the inflationary impact of public sector pay rises. The extra money is likely to increase demand for services somewhat, but won’t cause wage cost increases for businesses which would lead to price rises.
The decision was obviously very finely balanced, and I hope the BOE pauses to assess its impact before cutting further. And I agree that Bailey has been a hopeless governor who was asleep at the wheel when inflation took off. He was lucky to keep his job.

This is hardly a surprise, it's been predicted for months.

@Tanaria

“The BBC state that one of the driving factors for the drop in inflation is energy prices - well, those are going up again from October. Fuel and food prices are still at a high. Most everyday living costs are, but it also doesn't make sense to save unless you can afford to save thousands (which, again, the majority of people cannot) where interest rates generally become decent.”

A drop in inflation doesn’t mean prices stop rising. Inflation basically means prices are increasing.

They just aren’t going up as much as they would be if inflation was higher.

Yes, I am aware of that; my point was that energy prices will rise again, and I doubt it will be by just 2%.

I think Tanaria has identified the pitfall. If people who have savings put away for retirement think they will be eroded by inflation, then they will bring forward spending to buy some asset they want house improvements, new car rather than leaving it on deposit. It will buy more now, and if we end up brassic, the taxpayer will stump up for our care.

Of course, this is a narrative that contradicts the person paying a mortgage whose LTV ratio is at the early end of the equation.