Struggling Brits were finally given some respite today as the Bank of England cut interest rates.
The Monetary Policy Committee reduced the cost of borrowing to 5 per cent from the 16-year-high of 5.25 per cent – where it has been since last August.
Optimism about a cut had been boosted by inflation returning to the Bank’s 2 per cent target after nearly three years of rampant cost of living pressures.
However, stubborn price rises in the services sector – partly driven by the boom from Taylor Swift’s Eras tour – raised doubts about whether the MPC would act before September.
And those reservations were fueled by new Chancellor Rachel Reeves signing off a swathe of inflation-busting pay hikes for the public sector this week.
She has also offered junior doctors 22 per cent over two years in a desperate bid to end damaging strike action.
Financial markets had priced in a 65 per cent chance of a rates reduction – which would be the first in more than four years.
Governor Andrew Bailey will also issue a report and hold a press conference after the announcement giving further insight into the Bank’s view on the state of the economy.
The IMF warned recently that there is an increased prospect of ‘higher-for-even-longer’ interest rates due to persistent wage and services inflation.
In June the MPC voted by seven to two to leave interest rates at 5.25 per cent, but gave a strong hint that it was moving towards a reduction.
Economists stressed that other key indicators of inflationary pressure – mainly services inflation and wage rises – have remained a concern for policymakers.
Ms Reeves took a huge political gamble earlier this week after claiming the Tories had left a £22billion black hole in the finances.
She used the accusation as cover to effectively tear up Labour’s election platform – stripping winter fuel payments from 10million pensioners, ditching the long-awaited social care cap, and shelving major road projects.
Critics pointed out that nearly half of the alleged funding gap was down to Ms Reeves deciding to ‘cave in’ to union demands for public sector pay rises, with an eye-watering 22 per cent over two years for striking junior doctors and 5 per cent for many other workers.
Teachers and nurses are set to receive a 5.5 per cent pay boost, armed forces personnel will get a 6 per cent increase, prison service workers 5 per cent and the police 4.75 per cent.
That had raised concerns about pushing up other settlements, and adding to the CPI with a wage spiral.