Latest news with #CharlieBean
The Guardian
04-07-2025
- Business
- The Guardian
Rachel Reeves needs wider headroom against fiscal rules, ex-Bank of England deputy says
The former Bank of England deputy governor Charlie Bean has urged Rachel Reeves to create much wider headroom against her fiscal rules – a decision likely to require significant tax rises or spending cuts. Bean suggested that the current slim margin of less than £10bn, had led the chancellor to 'fine-tune' the government's tax and spending plans to meet the Office for Budget Responsibility's (OBR) forecasts five years ahead. 'Government spending is about one and a quarter trillion, so £10bn is a small number … and it is a small number in the context of typical forecasting errors,' he told BBC Radio 4's Today programme. He added: 'She should aim to operate with a larger margin of headroom, so previous chancellors have typically operated with headroom of the order of £30bn. 'Because she has chosen about a third of that … it is very easy for numbers to go in the wrong direction and she finds she has to neurotically fine-tune taxes to control the OBR forecast that is several years ahead.' Bean, who is also a former member of the OBR's budget responsibility committee, added: 'The original sin is that she should not have chosen to operate with such a tight margin of error.' Reeves increased taxes by a historic £40bn in her budget last October. However, with most of the proceeds earmarked for public services, she left herself on track to meet her strict fiscal rules with a relatively slim margin of £10bn. That 'headroom' was set to be wiped out before the spring statement in March, prompting the scramble for savings that led to the £5bn cuts to disability benefits, which Labour dropped this week after a backbench revolt. Reeves's team privately acknowledge that the small headroom of less than £10bn she left herself against the forecasts has contributed to the challenges of the past 12 months – but argue that she had little choice given the poor fiscal inheritance left by the Tories. Sign up to Business Today Get set for the working day – we'll point you to all the business news and analysis you need every morning after newsletter promotion The chancellor is widely expected to have to increase taxes in her autumn budget, to close the gap created by U-turns on disability benefits and the winter fuel allowance, and because of the prospect of weaker economic forecasts. She insisted she was 'cracking on with the job' on Thursday, after a tumultuous day on Wednesday in which bond markets dumped UK government debt amid speculation about the chancellor's future. Creating an additional £20bn of fiscal headroom, as Bean suggested, would require tax rises equivalent to 2p on the basic and higher rates of income tax.
The Guardian
16-04-2025
- Business
- The Guardian
UK inflation falls to 2.6%, increasing pressure on Bank to cut interest rates
UK inflation dropped to 2.6% in March, increasing the pressure on Bank of England policymakers to cut interest rates next month. Prices growth was weak ahead of an expected rise in April as households begin to pay higher council tax and utility bills. Last month's reading came in below City forecasts of a fall to 2.7%. It comes after the consumer prices index fell in February to 2.8%, down from 3% in January, after clothing costs cooled. Before Donald Trump's tariff announcements this month, analysts had predicted that inflation would start rising from April onwards, peaking at about 4% over the summer before falling back next year. However, the US president's trade war has cast doubt on those forecasts for CPI, which could peak at a lower rate if China is allowed to dump goods in Europe that were previously destined for the US. Pressure is building on the Bank of England's policymakers to cut interest rates when they meet next month. One of its previous deputy governors, Charlie Bean, said last week that tariff uncertainty meant the Bank should set aside concerns about inflation and cut the cost of borrowing by at least half a per cent, while the former prime minister Gordon Brown has called for a coordinated rate cut by all major central banks. More details soon …
The Independent
08-04-2025
- Business
- The Independent
Will interest rates be affected by Trump tariffs and when is the next Bank of England review?
Interest rates have been back on a downward path in 2025, but the going is slow and at the last review the Bank of England (BoE), which decides the base rate, froze them at 4.5 per cent. Altering the base rate is one of the ways the BoE keeps inflation under control, helps to stimulate spending and generally aims to control economic growth in line with government aims. However, along with domestic matters, the UK economy is affected by global events - and the potential trade war as a result of Donald Trump's tariffs and retaliations to the same could well impact the BoE's decision. When do the Bank of England meet next? The Bank of England, or specifically its Monetary Policy Committee (MPC), meet about every seven weeks to decide on any interest rate alterations. The last one came on 20 March when the MPC voted 8-1 to hold rates at 4.5 per cent, following a 25 basis points reduction from 4.75 per cent in February. the next meeting is 8 May - and more markets are now pricing in an expectation of a cut on that date. How might the BoE respond to tariffs? As lowering interest rates is one way to push spending and encourage business investment domestically, that's the route suggested by a previous decision-maker at the BoE. Former deputy governor and chief economist of the Office for Budget Responsibility (OBR), Charlie Bean, has urged committee members to cut rates by a full half percentage point this time around. Speaking about his own tenure when cutting rates by more than expected during the Global Financial Crisis in 2008, he explained that the uncertainty hampering businesses making decisions and completing orders would likely present more of a threat than the tariffs themselves. 'It is not just the tariffs that are the problem, it is the huge uncertainty these actions have created, delaying buying and investment decision by businesses and consumers,' Bean told the Guardian. 'In November 2008, the markets expected a 0.25 percentage point cut, or maybe a half a per cent. But we were talking to our agents in the regions and they said business orders had fallen off a cliff. It was obviously a very serious situation. We surprised everyone with a cut of 1.5 percentage points. It was huge and it needed to be. 'The tariff situation is not of the same magnitude but this is a disinflationary shock and an event that the bank should react to, and react very strongly.' Lower interest rates mean borrowing money is cheaper, encouraging businesses to invest in projects and personnel, while also lowering costs for people who are homeowners or have other loans. Of course, the flip side is that savers will earn less on the money they have tucked away. What are the interest rate predictions? Many analysts are now suggesting three further rate cuts are likely this year - but this can change suddenly and without much warning. As recently as the March meeting, nobody expected an interest rate cut and, at that time, with markets calm and inflation slightly rising beforehand, the expectation was a tempering of that threat - so no action early in the year and maybe only two cuts ahead. A month later, everything has changed and a much bigger potential issue is on the horizon. Charles Luke, co-manager of Murray Income Trust, noted that 'UK bond yields have fallen sharply and are now pricing in three interest rate cuts in 2025, from two previously.' Laith Khalaf, head of investment analysis at AJ Bell, agreed and pointed out that the changes could feed through quickly to the mortgage market. 'The market had been pricing in two interest rate cuts this year, but in short order that has now been ratcheted up to three, which would take the base rate to 3.75 per cent by the end of 2025 (based on LSEG data),' he said. 'The two year gilt yield has also fallen; we may therefore see falling interest rates feeding into mortgage pricing before too long. Likewise the cash market may see fixed rates fading to reflect the new outlook for interest rates.'
