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Bank of England Forecasts Inflation Increase Due to Reeves' Budget

The Bank of England forecasts that Rachel Reeves' budget will increase inflation, but that interest rates will fall gradually.

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United Kingdom

EconomyLabour MarketUkInflationInterest RatesBudgetForecast

Bank Of EnglandMonetary Policy Committee (Mpc)

Rachel ReevesAndrew Bailey

What action did the Bank of England take regarding interest rates?: The Bank of England's Monetary Policy Committee (MPC) cut the base rate by 0.25 percentage points to 4.75%, predicting inflation will return to the 2% target in the first half of 2027.
What is the overall trend regarding inflation according to Governor Bailey?: Governor Andrew Bailey emphasized that despite the inflationary pressure from the budget, the underlying trend shows continued progress in disinflation, and interest rates are likely to fall gradually.
How will Rachel Reeves's budget impact inflation according to the Bank of England?: Rachel Reeves's budget is projected to increase inflation by up to 0.5 percentage points over two years due to increased taxes and borrowing measures, slowing down the decline in interest rates.
What is the Bank of England's forecast for the impact of the budget on GDP and inflation?: The Bank of England forecasts that the budget will boost GDP by around three-quarters of a percent at its peak in a year and increase CPI inflation by just under half a percentage point at its peak.
When is the upward pressure on prices expected to begin, and what are the primary contributing factors?: The upward pressure on prices is expected to start in the first half of next year, primarily from increased VAT on private school fees, higher bus fares, and an increase in employer national insurance.

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