How will interest rates impact the UK economy?

Hello, I'm Charlie Conchison City AM and today we are outside a suitably wet and

miserable Bank of England perhaps where the Monetary Policy Committee has just opted to hold

rates at 5.25%. I'm joined by our economics guru Chris Dorrell who has just been locked deep

in the bowels of the Bank of England. So Chris no surprises really today. No, as expected the Bank of

that has left interest rates at 5.25%. So the rate setting committee, there's nine of them, six voted to keep rates where they are

three to increase by 25 basis points. So from that, I think you can see that, you know, there's a comfortable majority

for keeping things as they are for now, but the kind of balance is slightly tilted

to there's more work to be done. So we had some forecast today from the bank as well perhaps painting a slightly more bleak picture growth has been downgraded Can you tell us a bit what the sort of picture the bank is painting at the moment looks like Yeah So over the remainder of this year they downgraded their forecasts slightly

Looking into next year, it's pretty much stagnant across the entire year

So you're waiting until the second half of 2025, really, before growth starts picking up a tool

And that, the bank said, is partly because of the... the interest rate hikes they've done already, but also less support from fiscal policy

and kind of worse supply outlook, supply-side outlook. We've heard lots of warnings of recession this year as well, and I think there was a warning

today that much of the pain is still yet to come from this rate rising cycle. Is that still

a risk that we could drop into recession, but could be tipped into recession

Yes, so the bank was saying today that at least half, around half, of the impact of the interest

rates rate hikes is still to be felt which obviously gives a sense it the pain to come down the line Their forecasts didn have the economy going into recession at any point although you know

as I said, growth stagnant across all of next year, so there's very much possibility of it

But the MPC members after the meeting were also saying that really, you know, if you're forecasting

growth to be flat, whether it's contract. by 0.1.2% or expanding by 0.1.2% doesn't make a huge difference. That is not going to

change their minds on whether rates need to be cut any sooner. So a recession is a possibility, a mild recession

but I wouldn't expect that that would have much of an impact on the bank's thinking

The bank's thinking is obviously driven by what they see in the inflation data in the economy. What can we expect to see in the last sort of two prints this year

The outlooks that the remainder of this year is actually quite good Thanks to blowing energy and food prices the bank of specs that inflation will call to below 5 by the end of the year So Rishishanak will almost certainly meet his target

to halve inflation. Interestingly, looking into next year, progress then seems to stool

And we're waiting until the back end of 2025 until inflation falls to the 2% target

And that's largely thanks to the resilience of the labor market, which is key

keeping wage growth at a pretty elevated level, which then feeds on into consumer spending

and the performance of the economy as a whole. It's a mixed picture

and I think the message today was, well, as you said, there's no rate cuts for a while

tired for longer, and that is largely down to the persistence of inflation

looking into next year. And as if on cue, the rain started to fool

grim times have already arrived. We've been Charlie Conchon, Crystal, from Citi. you can catch us online in the paper and on the app