Base rate cuts may ease borrowing costs but without stronger public spending and targeted tax relief, economic stagnation will persist
“It will be welcome news to many that we have been able to cut interest rates again,” said Andrew Bailey, the Bank of England governor, last week. Plenty of mortgage holders would agree. Savers might not share Mr Bailey’s sentiments. However, he justified the cut, made despite inflationary risks, by arguing that falling worker bargaining power would see price pressures subside. Without rate cuts, the Bank warned, there was the risk of anaemic economic growth.
The chancellor, Rachel Reeves, backed the Bank, saying its action would “ease cost of living pressures”. That is true, but the benefits of lowering the burden of borrowing won’t outweigh the costs of Ms Reeves’ fiscal choices. She is counting on up to six base rate cuts by mid-2026 to buoy consumer sentiment. But relying solely on monetary policy is not effective economic management.