I WAS pleased to see the Bank of England cut interest rates last week, but it is warning that rates won’t continue fall as quickly if further progress on inflation reduction is sticky is a worrying reminder of the likely impact of Labour’s recent Budget.

The reduction of headline interest rates from five per cent to 4.75 per cent was a widely anticipated move and comes as a result of the tough decisions we made in government to reduce inflation from 11 per cent to two per cent in the wake of the unprecedented economic damage caused by the war in Ukraine and the Covid pandemic.

This marks the second cut in interest rates this year, following a decrease from 5.25 per cent to five per cent in August, and the decision is expected to have positive implications for consumers and the broader economy, particularly in terms of borrowing costs and consumer spending.

A lower base rate of interest typically translates to reduced costs for loans and mortgages, which can stimulate consumer spending.

As households benefit from decreased monthly mortgage payments, there is an expectation that they will have more disposable income to spend on goods and services, thereby driving economic growth where there is capacity in the economy.

This is positive news for many of us locally including those who are looking to re-mortgage or buy a home or running a small business and needing finance in order to invest and grow.

Bank of England Governor, Andrew Bailey, has indicated that this latest interest rate cut is part of a broader expectation of gradually lower rates moving forward.

However, he also emphasised the importance of keeping inflation close to the Bank's target of two per cent, and stressed that the Bank expects to see inflation begin to creep higher in the wake of Labour’s Budget.

I have expressed my concerns about many elements of the recent Budget, but it is especially worrying that the inflationary nature of Labour’s plans threatens to undo much of the work that we did in government to bring inflation back down to the Bank’s target.

The Office of Budget Responsibility (OBR) has confirmed that the decisions taken at Labour’s Budget will increase inflation.

The rate of inflation is now higher in every year of the OBR’s November forecast compared to March 2024 when the Conservatives were in power. This spells tougher news for interest rates.

While interest rates have come down significantly this year ,they are still much higher than they were pre-pandemic and they will not continue to fall at a steady rate unless inflation is kept under control.

The OBR estimates that interest rates will increase by 0.25 from 2025-26.

The cutting of interest rates last week is positive news for many, and further evidence that our economic plan in government was working, but it remains to be seen where rates go from here and Labour’s budget will have done nothing to help them on their way down.