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Many Brits will rightly be celebrating the fact that inflation is down, as that means a much-needed rate cut from the Bank of England is as good as nailed-on tomorrow. Governor Andrew Bailey is now likely to side with the doves after erring on the side of caution at the previous meeting. A cut in the base rate, most likely of 0.25%, will be a massive boost for borrowers and the broader property market, and many brokers are expecting mortgage rates to fall in the days and weeks ahead on the back of it.
A base rate reduction will help the UK’s beleaguered businesses, too. Savers, of course, will be in less celebratory mood, as savings rates will also be cut. But the fact that inflation has fallen so sharply says something more sinister about the country’s economic health.
It’s less a sign of brilliant economic management by the Bank of England than a reflection of the nation’s shattered finances — and equally shattered confidence.
Inflation has come down for the simple reason that many people aren’t spending. They’re not spending either because they don’t have the money to do so or because they are worried about their jobs and financial futures.
Earlier this week, unemployment rose to 5.1% due to this government’s full-blown fiscal assault on businesses. In such an anti-business climate, firms are putting hiring on hold or even laying off staff.
It may come as a surprise to the Chancellor but that’s precisely what happens when you tax jobs so heavily. The result is people become nervous and start building up their reserves rather than spend money, which is key to the UK’s economic revival.
Just look at last Friday’s GDP data, which showed the economy contracted by 0.1% in October as consumers put their spending on hold. And who can blame them as the economy unravels in real time before their eyes?
And when nobody is spending because they are being taxed into the ground or simply lack the confidence to, prices can only go one way. And that’s precisely what has happened.
Prices are coming down not because we are witnessing the central bank masterfully carry out its mandate, but because UK consumers and businesses are on the canvas, having been pummelled by the bleak rhetoric and poor fiscal policies of the government.
Yes, inflation coming down will benefit many and is a victory. But the reasons why it has come down make it a hollow one.
