Rachel Reeves is celebrating the Bank of England’s interest cut – but behind the scenes she has little to cheer
The economy is stagnating and job losses are mounting. Now is the time to cut interest rates again.
That was the view of the Bank of England’s nine-member rate setting committee on Thursday.
Well, at least five of them.
The other four presented us with a different view: Inflation is above target and climbing – this is no time to cut interest rates.
Who is right? All of them and none of them.
Central bankers have been backed into a corner by the current economic climate and navigating a path out is challenging.
The difficulty in charting that route was on display as the Bank struggled to decide on the best course of monetary policy.
The committee had to take it to a re-vote for the first time in the Bank’s history.
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Bank of England is ‘a bit muddled’
On one side, central bankers – including Andrew Bailey – were swayed by the data on the economy. Growth is “subdued”, they said, and job losses are mounting.
This should weigh on wage increases, which are already moderating, and in turn inflation.
One member, Alan Taylor, was so worried about the economy he initially suggested a larger half a percentage point cut.
On the other side, their colleagues were alarmed by inflation.
The Bank upgraded its inflation forecasts, with the headline index expected to hit 4% in September.
In a blow to the chancellor, the September figure is used to uprate a number of benefits and pensions. The Bank lifted it from a previous forecast of 3.75%.
In explaining the increase, the Bank blamed higher utility bills and food prices.
Food price inflation could hit 5.5% this year, an increase driven by poor harvests, some expensive packaging regulations as well as higher employment costs arising from the Autumn Budget.
Rachel Reeves on Thursday. Pic: PA
When pressed by Sky News on the main contributor to that increase – poor harvests or government policy – the governor said: “It’s about 50-50.”
The Bank doesn’t like to get political but nothing about this is flattering for the chancellor.
The Bank said food retailers, including supermarkets, were passing on higher national insurance and living wage costs – the ones announced in the Autumn Budget – to customers.
Economists at the Bank pointed out that food retailers employ a large proportion of low wage workers and are more vulnerable to the lowering of the national insurance threshold because they have a larger proportion of part-time workers.
The danger doesn’t end there.
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Of all the types of inflation, food price inflation is among the most dangerous.
Households spend 11% of their disposable income, meaning higher food price inflation can play an outsized role in our perception of how high overall inflation in the economy is.
When that happens, workers are more likely to push for pay rises, a dangerous loop that can lead to higher inflation.
So while the chancellor is publicly celebrating the Bank’s fifth interest rate cut in a year, behind the scenes she will have very little to cheer.
A hostile environment era deportation policy for criminals is being expanded by the Labour government as it continues its migration crackdown.
The government wants to go further in extraditing foreign offenders before they have a chance to appeal by including more countries in the existing scheme.
Offenders that have a human right appeal rejected will get offshored, and further appeals will then get heard from abroad.
It follows the government announcing on Saturday that it wants to deport criminals as soon as they are sentenced.
The “deport now, appeal later” policy was first introduced when Baroness Theresa May was home secretary in 2014 as part of the Conservative government’s hostile environment policy to try and reduce migration.
It saw hundreds of people returned to a handful of countries like Kenya and Jamaica under Section 94B of the Nationality, Immigration and Asylum Act 2002, added in via amendment.
In 2017, a Supreme Court effectively stopped the policy from being used after it was challenged on the grounds that appealing from abroad was not compliant with human rights.
However, in 2023, then home secretary Suella Braverman announced she was restarting the policy after providing more facilities abroad for people to lodge their appeals.
Now, the current government says it is expanding the partnership from eight countries to 23.
Previously, offenders were being returned to Finland, Nigeria, Estonia, Albania, Belize, Mauritius, Tanzania and Kosovo for remote hearings.
Angola, Australia, Botswana, Brunei, Bulgaria, Canada, Guyana, India, Indonesia, Kenya, Latvia, Lebanon, Malaysia, Uganda and Zambia are the countries being added – with the government wanting to include more.
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Theresa May’s hostile environment policy proved controversial. Pic: PA
The Home Office claims this is the “the government’s latest tool in its comprehensive approach to scaling up our ability to remove foreign criminals”, touting 5,200 removals of foreign offenders since July 2024 – an increase of 14% compared with the year before.
Home Secretary Yvette Cooper said: “Those who commit crimes in our country cannot be allowed to manipulate the system, which is why we are restoring control and sending a clear message that our laws must be respected and will be enforced.”
Foreign Secretary David Lammy said: “We are leading diplomatic efforts to increase the number of countries where foreign criminals can be swiftly returned, and if they want to appeal, they can do so safely from their home country.
“Under this scheme, we’re investing in international partnerships that uphold our security and make our streets safer.”
Both ministers opposed the hostile environment policy when in opposition.
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In 2015, Sir Keir Starmer had questioned whether such a policy was workable – saying in-person appeals were the norm for 200 years and had been a “highly effective way of resolving differences”.
He also raised concerns about the impact on children if parents were deported and then returned after a successful appeal.
In today’s announcement, the prime minister’s administration said it wanted to prevent people from “gaming the system” and clamp down on people staying in the UK for “months or years” while appeals are heard.
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