A pre-Christmas rate cut is in the balance as the Bank of England meets this week to decide whether to keep the cost of borrowing on hold.
Hopes have risen in recent weeks that interest rates could be lowered for the sixth time in just over a year amid signs inflation may have peaked and pay deals moderated.
But looming large over the Bank’s rate-setters is the shadow of Rachel Reeves’ Budget later this month when the Chancellor is expected to launch another round of growth-defying tax rises to balance the books.
Experts say until the scale of her tax grab and any public spending cuts is known the Bank will sit on its hands by keeping rates at 4 per cent.
Decision time: Hopes have risen in recent weeks that interest rates could be lowered for the sixth time in just over a year amid
‘It is likely to be a factor in the December decision,’ said Ellie Henderson, economist at investment bank Investec.
Inflation at 3.8 per cent was ‘still nearly double the Bank’s target’, giving it further cause to pause this month, she said.
Traders reckon there is a 50:50 chance of a rate cut at the Bank’s December meeting.
The growing prospect of a cut has put pressure on the pound, which last week fell below €1.14 – its lowest level against the single currency in two and a half years. Against the dollar sterling dropped to a six-month low of $1.31.
‘Sterling has had a Halloween shocker,’ said Simon Phillips of travel cash firm No1 Currency.
The Mail on Sunday recently revealed that traders had been raising their bets against the pound to levels seen in the Liz Truss 2022 mini-Budget crisis.
In an ominous sign for Reeves, speculators have resumed betting on a fall in sterling’s value ahead of the Budget, which could see her have to find up to £50 billion to meet her fiscal rules.
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