Bank of England expected to pause rate cuts despite contracting output

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Bank of England expected to pause rate cuts despite contracting output  Policymakers find themselves in a tight spot ahead of Thursday’s rate decision, with growth remaining sluggish and inflation stubborn.  READ MORE : http://www.euronews.com/2025/03/18/bank-of-england-expected-to-pause-rate-cuts-despite-contracting-output  Subscribe to our channel. Euronews is available on Dailymotion in 12 languages

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00:00Marie-Anne Amieux, Chief UK Economist at S&P Global Ratings, good morning.

00:06The Bank of England is holding its next monetary policy meeting this Thursday.

00:11It cut interest rates at its last meeting, but what can we expect this week?

00:16Well, thanks for having me.

00:18So I would say in short, we expect no rate cuts.

00:20At the moment, it's a bit of a tricky time for the Bank of England.

00:24So we've seen that inflation has fallen like everywhere else, but the strength of the wage

00:29growth profile has been quite surprising if you look at the weakness of the economy

00:34at the same time.

00:36So it points to, I would say, an underlying weakness in the country's ability to grow.

00:41And that makes it harder for the Bank of England to understand whether the inflationary pressures

00:47are linked just to the past shocks we've seen, or whether this is linked to, I guess, a smaller

00:55capacity to grow of the economy.

00:57So in my view, the Bank of England will be very cautious this year and probably be careful

01:03about not seeing more inflationary second round effect of the renewed pressures from

01:09energy and food prices, but at the same time, watching that the labour market doesn't cool

01:14too fast.

01:15So in my view, we might see two more rate cuts this year, but definitely not this week.

01:21And a risk that the Bank of England will be watching is US President Donald Trump, and

01:26in particular, his trade policies.

01:28But how dangerous could a trade war actually be for the UK?

01:31So on the face of it, I would say the UK is not too exposed to tariffs from the US on

01:37UK goods, because if we look at the 10% tariff, for example, as a ballpark number, this would

01:44cost about 0.2 percentage points to growth in the UK.

01:48So it's not such a big number.

01:50But I think in the short term, what the tariff war does is raise uncertainty.

01:57So the UK might even get a special agreement with the US, but for companies, it's really

02:02hard to get clarity on this in the short and medium term.

02:05So this will weigh on their investment ability.

02:08Another thing that matters as well, I think, for the UK is uncertainty for consumers.

02:13So they've not spent as much as they would have in the past because of uncertainty about

02:20the economic outlook.

02:22And having more uncertainty from abroad, I think this raises the risk that they continue

02:28to be quite cautious.

02:30So overall, definitely a negative impact on economic activity.

02:34It might not be a short term recession, but at least it will weigh on the growth profile.

02:41And UK Chancellor Rachel Reeves will soon deliver her spring statement to the House

02:45of Commons outlining her spending plans.

02:49But do you think that she will stick to her own rules on borrowing at a time when there

02:54are so many critical demands on the government?

02:58It's a good question.

02:59So it's a bit of a balancing act, I would say, for the government right now.

03:03So as they've highlighted in October, they want to spend more on public services.

03:08But obviously, you have to meet that with some higher taxes or less spending elsewhere

03:14if you abide by borrowing rules.

03:17And the equation has changed slightly since October because borrowing costs are up about,

03:22I think, 60 basis points.

03:24So that really reduces the headroom for the government.

03:28I would say that there's been a lot of signalling in the past few weeks that spending cuts are

03:32coming, at least in the welfare system.

03:35I would say it's not just about a borrowing rule story, because the market is also asking

03:40if any more spending can really boost growth.

03:43We've not really seen that in the past few weeks or months.

03:47Adding to that, over the past two years, if you look at the GDP profile, all of the growth

03:53almost has come from the public sector.

03:55But yet we see productivity stagnant.

04:00And if all of the growth has come from the public sector, it means that the multiplier,

04:04if you will, for the private sector is very low.

04:06So I think it's fair to ask if there is some way that the public sector can be more efficient.

04:12So it's not just about self-imposed borrowing rules, but also a general story about the

04:18economic productivity, I would say.

04:22Marianne Amieux, thank you for joining us.

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