Britain’s growth outlook is ‘worst I’ve ever seen’, says Andrew Bailey

Andrew Bailey has said the outlook for the economy is the worst he’s ever seen, as Britain struggles to boost low levels of growth.

The Bank of England Governor raised concerns over the UK’s future prospects just days after the Office for Budget Responsibility (OBR) slashed its predictions for growth over the next two years.

In an interview with The Chronicle in Newcastle, Mr Bailey said: “If you look at what I call the potential growth rates of the economy, there’s no doubt it’s lower than it has been in much of my working life.

“It does concern me that the supply side of the economy has slowed. It does concern me a lot.”

The Bank’s latest forecasts indicate the economy will barely grow at all next year, or in 2025.

Its predictions of weak supply growth are one reason Mr Bailey and his colleagues on the nine-strong Monetary Policy Committee (MPC) are keeping interest rates high.

When asked about rates, Mr Bailey said they are unlikely to be cut for the “foreseeable future” as he warned the next stage of cutting inflation would be “hard work”.

So far, inflation has fallen from a peak of 11.1pc in October 2022 to 4.6pc last month, when a drop in the energy price cap pulled the headline rate down from September’s 6.7pc.

Mr Bailey said there is “more of that unwind” from international energy and food prices to come.

However, the Governor said the job is not done yet, and warned families not to expect any steep falls as the Bank battles to get prices back to its 2pc target.

He said: “We’re not going to see another month, I’m afraid, where it’s going down 2pc because of [energy].

“By the end of the first quarter next year, when a lot of that unwind will have happened, we may be a bit under 4pc but we’ll still have 2pc to go, maybe. And the rest of it has to be done by policy and monetary policy. And policy is operating in what I call a restrictive way at the moment – it is restricting the economy.”

He stressed that this requires rates to stay at their current level of 5.25pc for some time, despite the pain it inflicts on borrowers.

But the Governor added that poorer households are suffering most from inflation, so it is in their interests to get price rises under control.

He said: “I’m very conscious of the position of the less well-off but we do have to get it down to 2pc and that’s why I have pushed back of late against assumptions that we’re talking about cutting interest rates or we will be cutting interest in anything like the foreseeable future because it’s too soon to have that discussion.”

Financial markets are currently betting that the first rate cut, from 5.25pc to 5pc, will come in the summer of 2024.

Jack Meaning, an economist at Barclays and formerly of the Bank of England, said that if next year’s rise in the National Living Wage slows the fall in inflation, it could push that first rate cut back even further.

He said: “This boost would represent a slowing in the pace of decline of wages, rather than a re-acceleration, but it is likely to come at precisely the moment the Bank is starting to more seriously consider rate cuts.

“If all the other indicators of underlying labour market slack and wage momentum are pointing to ongoing easing, as we expect them to be, then we think the case remains strong for the MPC to look through this effect.

“However, it has the potential to give a hawkish MPC member pause for thought and raises the probability that they might want to wait beyond August 2024.”

The National Living Wage is going up from £10.42 per hour to £11.44 in April, as announced by Chancellor Jeremy Hunt in his Autumn Statement last week. This headline legal minimum rate will apply to all employees aged over 21, down from 23 previously.