Tories Welcome Bank of England's Interest Rate Pause But Warn They're "Not Out Of The Woods"
A number of Conservative MPs have welcomed the Bank of England’s decision to keep interest rates at 5.25 per cent, but claimed the central bank’s rapid increases in the Bank Rate prior to today may have damaged economic growth.
The Bank’s Monetary Policy Committee – which sets interest rates – today voted by a margin of 5-4 to pause the recent hikes to the Bank Rate. Its members, however, did not rule out the need for further interest rate increases in the coming months.
Many economists earlier this week anticipated the Bank would have opted for a fifteenth consecutive rise in the Bank Rate.
However, UK inflation unexpectedly fell from 6.8 per cent in July to 6.7 per cent in August. Core inflation – which excludes energy and food prices – also dropped from 6.9 to 6.2 per cent in the same period.
Former cabinet minister Iain Duncan Smith told PoliticsHome he welcomed the Bank’s decision to pause its interest rate hike. However, he claimed the UK’s central bank had increased the Bank Rate far too quickly over the last year.
“It is the right decision [to pause interest rate rises]. The danger that they've got at the moment, which they must be aware of, is that they overkill the economy,” he added.
“It’s highly possible they’ve already done that. We’ve had to go harder and further because [the Bank] was very complacent.
“There is a big danger that we have squeezed the economy so much that it doesn't bounce back.”
The former Conservative Party leader added economic growth was critical for the UK. The OECD predicts UK Growth in 2024 will be 0.8 per cent – which was downgraded from 1 per cent.
For more than a year, the Bank of England had decided to raise interest rates fourteen consecutive times. If they had decided to hike them today, it would have marked a record.
In a statement today, Chancellor Jeremy Hunt welcomed the news overall and said the UK was beginning to see the “tide turn against inflation".
“Now is the time to see the job through. We are on track to halve inflation this year and sticking to our plan is the only way to bring interest and mortgage rates down,” he said.
Former minister Stephen Hammond told PoliticsHome he welcomed the news, and said the Bank needs to see the effect of its recent hikes before acting again.
“I think it is another sign the economy is beginning to turn more positive. But also a recognition that the Bank needs to see the effect of policy tightening and to ensure it doesn’t kill off any nascent recovery,” he added.
The news may come as a relief to many homeowners, who will have been affected by the rising cost of their mortgages.
Mortgage holders have paid almost an extra £6,000 annual on their payments since interest rates began to tick up, according to data from the i newspaper.
Ashley Webb, economist at Capital Economics, told the Financial Times that interest rates are expected to remain high for a long time. They predicted they could begin to fall by the end of next year.
Conservative MP Charles Walker, former Chairman of the 1922 committee, told PoliticsHome he believed the Bank's decision to pause interest rate hikes would offer relief to mortgage holders. What's more, he claimed the news could make an election in Autumn 2024 more likely.
“I suspect interest rates will be drifting downwards towards the first or second quarter of 2024,” he added.
“Look at the markets, those who follow interest rates think we are at the top of the cycle... I think it makes an Autumn election next year more likely."
Ben Everitt, MP for Milton Keynes North, felt the economic news was positive but warned the Government was "not out of the woods yet".
"It does feel like on the economy, we've turned a corner, we've got control of the public finances. There's more work to do, but things are getting better. In terms of a political narrative, we are having an honest conversation with people," he said.
"We're not out of the woods yet. But it will take pressure off people. There's still more work to do. We can't be complacent."
However, not all Conservative MPs were optimistic about the Bank's decision today. One former minister told PoliticsHome the Conservative Party should not “get ahead” of itself and feel like they have “turned a corner”.
“Even if interest rates stay where they are today, it doesn't guarantee that they won't go up again in the future,” they said.
“But more to the point, all of those people coming off fixed rates will still be facing a whacking great hike.
“The challenge for the PM, and everyone, is to say, look, we know that things have gotten materially worse in a number of ways. But we're the people to make it materially better.”
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