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The Bank of England has forecast Rachel Reeves’s first budget as chancellor will increase inflation by up to half a percentage point over the next two years, contributing to a slower decline in interest rates than previously thought.

Announcing a widely anticipated 0.25 percentage point cut in the base rate to 4.75%, the Bank’s Monetary Policy Committee (MPC) forecast that inflation will return “sustainably” to its target of 2% in the first half of 2027, a year later than at its last meeting.

“Since the MPC’s previous meeting, the market-implied path for the Bank rate in the United Kingdom has shifted up materially,” the MPC said in its minutes.

Interest rate falls – latest updates

The Bank’s quarterly Monetary Policy Report found Ms Reeves’s £70bn package of tax and borrowing measures will place upward pressure on prices, as well as delivering a three-quarter point increase to GDP next year.

Governor Andrew Bailey stressed however that the underlying trend was “continued progress in disinflation”.

The MPC, whose members voted 8-1 in favour of the cut, with the single opponent favouring a hold at 5%, maintained its view that rates will need to fall “gradually” as it monitors the economic response to falling inflation.

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“Inflation is just below our 2% target and we have been able to cut interest rates again today,” said Mr Bailey.

“We need to make sure inflation stays close to target, so we can’t cut interest rates too quickly or by too much. But if the economy evolves as we expect it’s likely that interest rates will continue to fall gradually from here.”

Why will inflation rise?

The Bank forecasts that the upward pressure on prices will begin in the first half of next year, with the addition of VAT to private school fees and the £1 increase in the bus fare cap to £3.

The increase in employer national insurance to 15%, the largest single measure in the budget, is “assumed to have a small upward impact on inflation,” offset by the freeze in fuel duty rates.

Together these will push inflation up by 0.3 percentage points next year, with the near-half point peak coming in 2026 only after the removal of the fuel duty-freeze, a measure the Bank is compelled to assume will happen, despite successive chancellors, including Ms Reeves, maintaining it for 11 years.

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The Bank found that the national insurance increase and the uprating in the national living wage “is likely to increase the overall costs of employment”, and will be passed on by employers through a mix of higher prices, marginal costs and wages, but the balance between those is not yet clear.

“The combined effects of the measures announced in the autumn Budget 2024 are provisionally expected to boost the level of GDP by around three-quarter per cent at their peak in a year’s time, relative to the August projections,” the minutes read.

“The budget is provisionally expected to boost CPI inflation by just under half of a percentage point at the peak, reflecting both the indirect effects of the smaller margin of excess supply and direct impacts from the budget measures.”

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Water companies blocked from using customer cash for ‘undeserved’ bonuses

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Water companies blocked from using customer cash for 'undeserved' bonuses

Nine water companies have been blocked from using customer money to fund “undeserved” bonuses by the industry’s regulator.

Ofwat said it had stepped in to use its new powers over water firms that cannot show that bonuses are sufficiently linked to performance.

The blocked payouts amount to 73% of the total executive awards proposed across the industry.

The regulator has prevented crisis-hit Thames Water, Yorkshire Water, and Dwr Cymru Welsh Water from paying £1.5m in bonuses from cash generated from customer bills.

It said a further six firms have voluntarily decided not to push the cost of executive bonuses worth a combined £5.2m on to customers.

Instead, shareholders at Anglian Water, Severn Trent, South West, Southern Water, United Utilities and Wessex will pay the cost.

Money blog: Seven deals to avoid on Black Friday – and alternative buys

David Black, chief executive of Ofwat, said: “In stopping customers from paying for undeserved bonuses that do not properly reflect performance, we are looking to sharpen executive mindsets and push companies to improve their performance and culture of accountability.

“While we are starting to see companies take some positive steps, they need to do more to rebuild public trust.”

The announcement came in an Ofwat update on firms’ financial resilience and bonuses.

Industry lobby group Water UK said: “Almost all water company bonuses are already paid by shareholders, not customers.

“All companies recognise the need to do more to deliver on their plans to support economic growth, build more homes, secure our water supplies and end sewage entering our rivers.

“We now need the regulator Ofwat to fully approve water companies’ £108bn investment plans so that we can get on with it.

“Ofwat’s financial resilience report provides yet more evidence that the current system isn’t working, with returns down to 2% and eight companies making a loss.

“It is clear we need a faster and simpler system which allows companies to deliver for customers, the environment and the country.”

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Google could be forced to sell its Chrome browser over internet search monopoly claims

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Google could be forced to sell its Chrome browser over internet search monopoly claims

Google must sell its Chrome browser to restore competition in the online search market, US prosecutors have argued.

The proposed breakup has been floated in a 23-page document filed by the US Justice Department.

It also calls for lawmakers to impose restrictions designed to prevent its Android smartphone software from favouring its own search engine.

If the rules were brought in, it would essentially result in Google being highly regulated for 10 years.

Google controls about 90% of the online search market and 95% on smartphones.

Read more:
School smartphone ban will not become law after MP drops proposal
Grieving parents tell Ofcom to ‘step up’ over social media content

Court papers filed on Wednesday expand on an earlier outline for what prosecutors argued would dilute that monopoly.

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Google called the proposals radical at the time, saying they would harm US consumers and businesses and shake American competitiveness in AI.

The company has said it will appeal.

The US Department of Justice (DoJ) and a coalition of states want US District Judge Amit Mehta to end exclusive agreements in which Google pays billions of dollars annually to Apple and other device vendors to be the default search engine on their tablets and smartphones.

Google will have a chance to present its own proposals in December.

A trial on the proposals has been set for April, however President-elect Donald Trump and the DoJ’s next antitrust head could step in.

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Dozens of partners take early retirement from accountancy giant PwC

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Dozens of partners take early retirement from accountancy giant PwC

Dozens of partners at PricewaterhouseCoopers (PwC), Britain’s biggest accountancy firm, will next month take early retirement as its new boss takes steps to boost its performance.

Sky News has learnt that PwC’s 1,030 UK partners were notified earlier this week that a larger-than-usual round of partner retirements would take place at the end of the year.

Sources said the round would involve several dozen partners – who command average pay packages of about £1m – leaving the firm.

PwC named about 60 new partners earlier this year under Marco Amitrano, who was appointed as its new UK boss in the spring.

Mr Amitrano is understood to have informed partners about the changes in a voice memo, although one insider disputed the idea that the numbers involved were “significant”.

The partner retirements come as the big four audit firms contend with a sizeable bill from increases in the Budget in employers’ national insurance contributions.

It emerged this week that Deloitte is cutting nearly 200 jobs in its advisory business, according to the Financial Times.

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An ongoing shake-up of the audit profession is not being restricted to the big four firms, with Sky News revealing on Wednesday that Cinven, the private equity firm, was in advanced talks to buy a controlling stake in Grant Thornton UK.

The deal, which is expected to value Grant Thornton at somewhere in the region of £1.5bn, was announced on Thursday morning.

PwC declined to comment.

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