'The pace with which the Bank of England whacked up interest rates is still hurting people’s finances'

UK inflation figures fell from 2.6% to 2.5% in December, well below its peak of 11.1% recorded in October 2022, when Liz Truss was prime minister for all of 50 days.

When Sky’s Kay Burley asked Chief Secretary to the Treasury Darren Jones if he did the “Snoopy dance” upon seeing the latest inflation figures today, he said he didn’t know the dance, but was happy about the drop in inflation, describing it as “good news for families across the country”.

He added: “We know the cost of living is still a problem for lots of people” and acknowledged that it is still higher than the Bank of England’s 2% target.

Jones said that the fall in inflation shows the prime minister’s ‘Plan for Change’ is working, stating it has contributed to “stability across the economy”, while acknowledging there’s more work to be done.

While the dip in inflation won’t mean prices for day-to-day essentials go down, former Shadow Chancellor Ed Balls said on Good Morning Britain “It makes it more likely that we will see interest rates and mortgage rates come down this year.” 

Earlier this week, interest rates—or yields—on 10-year government bonds (gilts) rose to 4.9%, the highest level since 2008. Meanwhile, yields on 30-year bonds climbed to their highest point since 1998.

This increase was driven by investors selling off government bonds due to concerns over low economic growth, stubborn inflation, and high debt levels. As a result, the government now faces higher borrowing costs.

Responding to the latest inflation figures, TUC General Secretary Paul Nowak has called on the Bank of England (BoE) to implement another interest rate cut, pointing out that inflation continues to fall and is now below the BoE’s projections from a year ago.

The Bank of England’s current interest rate is 4.75%, with its next decision scheduled for 6 February.

Nowak said: “The government has made the right call on big economic decisions – boosting public investment and prioritising working people’s incomes – but the Bank of England must keep playing its part too.

“It’s time for the Bank of England to act with another interest rate cut at the start of February.”

The TUC General Secretary said that cutting interest rates “matters for hard-pressed working people,” adding “more money in people’s pockets means more money spent on our ailing high streets and lower interest rates would make it easier for firms to invest”. 

“After over a decade of economic failure from previous Conservative governments, restoring decent growth rates will be no small task – but it must remain a national priority. We cannot continue with the same broken status quo,” he stressed.   

Danny Sriskandarajah, chief executive of the New Economics Foundation, also said that the BoE needs to cut interest rates.

Sriskandarajah stated: “Inflation rates may have fallen but that’s likely to make little difference to the millions of people in this country struggling to afford the essentials – many of whom are also being hammered by high interest rates.

“The inflationary shock that resulted from the war in Ukraine has passed – but the pace with which the Bank of England whacked up interest rates in response is still hurting people’s finances and making it more difficult for the government to invest in the things we need.  

“The Bank of England urgently needs to cut interest rates. And, to reduce the impact of future inflationary shocks, the government should boost people’s incomes via the social security system, and tax the wealthiest to help pay for it.”

The Joseph Rowntree Foundation (JRF) has urged the Chancellor Rachel Reeves to “avoid distractions and stay true to improving living standards”.

JRF Director of Insight and Policy, and Chief Economist, Alfie Stirling said: “These figures serve as a reminder of the Government’s recent commitment to raising real living standards for all, and especially for low and middle-income households who bore the brunt of the cost of living crisis.”

He added that the “biggest threat to that commitment is an overreaction from government to bond market toddler tantrums”, stating that this would undermine the longer-term foundations of the economy in the longer-term.

“Rather than jeopardising the fragile economic recovery so far with further cuts to benefits and public services, government needs to be fast tracking plans to restore confidence and resilience for families to work, spend and invest, by improving protections rather than eroding them,” Stirling said. 

Olivia Barber is a reporter at Left Foot Forward

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