𝓤𝓷𝓲𝓽𝓮𝓭 𝓝𝓮𝔀𝓼

Rachel Reeves is under further intense pressure after the Bank of England downgraded its growth forecasts, painting a bleak picture for workers. The Chancellor, who has insisted economic growth is her top priority, was hit with the grim outlook yesterday as the central bank held interest rates at 3.75%, but signalled cuts could come soon to ease pressure on households.

In its latest report, the Bank slashed its prediction for UK growth this year to 0.9%, down from 1.2%, and to 1.5% in 2027, down from 1.6%. It warned that tax hikes towards the end of the decade will drag on the economy, with frozen income tax thresholds limiting support for household spending.

Unemployment is now forecast to peak at 5.3% between April and June – up from November’s estimate of 5.1% – potentially leaving an extra 100,000 people out of work. The Bank’s survey of business contacts highlighted higher labour costs and the potential impact of new workers’ rights laws as threats to firms’ hiring plans.

Shadow Chancellor Sir Mel Stride seized on the figures, slamming Labour’s handling of the economy. He said: “The Bank of England’s decision to cut its growth forecast for the next two years is deeply concerning, but it is no surprise. Rachel Reeves and Keir Starmer promised growth, but Labour’s mismanagement has delivered the opposite and the Bank has given its verdict. The decisions to hike taxes and increase borrowing to fund more welfare has flatlined growth and pushed up unemployment and inflation.”

Despite the downturn, there was a glimmer of hope on inflation. The Bank’s Monetary Policy Committee (MPC) now expects Consumer Prices Index (CPI) inflation to hit its 2% target this year, earlier than the 2027 timeline predicted previously. Measures from Ms Reeves’ autumn budget, including a £100million package for pubs and support to slash household energy bills from April, were credited with helping to curb price rises.

Governor Andrew Bailey hailed the progress but cautioned against rushing into rate cuts. He said: “We now think that inflation will fall back to around 2% by the spring. That’s good news.” He added: “We need to make sure that inflation stays there, so we’ve held interest rates unchanged at 3.75% today. All going well, there should be scope for some further reduction in the bank rate this year.”

However, Mr Bailey stressed the need for a “sustainable” drop in inflation before acting. He added: “Inflation does dip below target in the central case but it is only a small dip.” “We need to see this pattern emerge and more evidence, in my view, that we will have a sustainable return to target and that is more of an issue of underlying inflation,” the Governor also said. “Just as last year, we had what we tended to call the hump. We have to be very focused on the underlying story.”

Downing Street struck a defiant tone, insisting: “We defied the growth forecast last year. We’re determined to do so again this year.”

The Bank’s report also noted that while growth could exceed expectations in 2028, the immediate prospects remain tough for workers and businesses grappling with higher costs and policy changes.

The downgrade comes amid ongoing criticism of Ms Reeves’ budget, with pub landlords vowing to bar MPs after claiming the support package falls short amid a cost crisis hitting pubs hard.