The Bank of England is facing mounting calls from commentators and markets to either slow down or completely halt its ongoing bond-selling programme, widely known as quantitative tightening (QT). The central bank’s current £120bn bill has sparked debate regarding the balance between monetary power and accountability.
Although economists do not anticipate an immediate interest rate increase today, financial instruments indicate that borrowing costs are likely to climb over the coming year. Investors are currently pricing in four quarter-point increases by the end of 2027, which would push the base rate from its current 3.75% up to 4.75%.
Economic indicators present a mixed picture for the UK. The labour market is showing signs of weakness, with payroll employment declining, job vacancies hitting multi-year lows, and real wage growth turning negative. In contrast, July’s economic growth exceeded expectations, though analysts attribute much of this surge to capital expenditure in artificial intelligence, while the construction and manufacturing sectors contracted during the same period.
Concerns were also raised regarding global inflation trends, with observations noting that US inflation remains persistently high. Recent summer readings suggest that underlying inflationary pressures have not meaningfully improved, reinforcing the caution surrounding future monetary policy decisions.
US inflation staying high makes this even worse for the UK. Hard to see a clear path forward.
Four rate hikes by 2027? That seems aggressive given the weak labor market. Hope they pause the bond sales.
The mixed economic data is so confusing. Why is AI spending boosting growth while construction collapses?