How many more times will the Bank of England rescue Rachel Reeves? | Richard Partington

2 days ago7 min read2 comments

The City is holding its breath, its collective gaze fixed on Threadneedle Street for Thursday’s monetary policy announcement. The consensus is near-unanimous: the Bank of England is poised to deliver a sixth consecutive cut to the base rate, a move that will be instantly framed as an early Christmas gift to the Treasury.For Chancellor Rachel Reeves, navigating the persistent economic gloom that has characterized Labour’s inaugural year, these rate cuts have been a rare and reliable political lifeline. Each reduction in borrowing costs offers a tangible counter-narrative to sluggish growth and stagnant investment, a piece of positive economic news the government can directly trumpet.Yet, beneath the short-term political calculus lies a far more complicated macroeconomic picture, one where the immediate relief of cheaper debt collides with the ominous shadows cast by forecasts for 2026. The fundamental question isn’t whether the Bank will act this week—it almost certainly will—but how many more such rescues are fiscally and economically sustainable before the underlying structural weaknesses of the UK economy demand a reckoning.Since the general election, the Monetary Policy Committee’s easing cycle has provided a steady tailwind, lowering mortgage costs for homeowners and easing financing pressures on businesses, thereby indirectly bolstering the Chancellor’s standing. However, this very dependency highlights a precarious reality.The Bank’s independence is sacrosanct, yet its policy trajectory is now inextricably woven into the political narrative, with each decision scrutinized not just for its inflation-fighting merits but for its impact on the government’s political fortunes. Analysts are already parsing the language of the accompanying minutes and forecasts for hints of a pivot.The looming spectre of 2026 complicates the picture significantly. Current projections suggest a potential convergence of persistent inflationary pressures from a tight labour market and renewed global commodity shocks, alongside the full weight of deferred public spending cuts coming due.This creates a potential policy trap: the Bank may need to halt, or even reverse, its easing cycle just as the Treasury’s fiscal space is most constrained. From a market perspective, this forward guidance is everything.The gilt market and sterling will react not merely to the 25-basis-point cut expected this week, but to the MPC’s assessment of the ‘terminal rate’ in this cycle. If the Bank signals that the runway for further cuts is shorter than previously assumed, it could tighten financial conditions prematurely, undermining the very stimulus it seeks to provide.

#Bank of England

#interest rates

#Rachel Reeves

#monetary policy

#UK economy

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