Bank of England Cuts Forecast, Adding Pressure on Chancellor Reeves

This morning, the Bank of England announced a sharp downgrade in its forecast, predicting that the UK economy will expand by only 0.75% in 2025. This lower projection, which is just half of what was predicted last year, comes as the Bank cited factors such as the National Insurance hike, global trade uncertainties, and the adverse effects of rising tariffs. While increased public spending under Chancellor Rachel Reeves had provided some support to growth, it appears to be offset by these challenging economic headwinds.

The revised forecast has added significant pressure on the Labour government, particularly on Reeves, whose commitment in the Plan for Change was to accelerate economic growth and boost household incomes. Voters have been warned that the slight cut to interest rates might not be enough to counterbalance the impending large hikes in energy and water bills, which are expected to push inflation sharply upward.

Adding to the turmoil, political insiders reveal that Prime Minister Keir Starmer is considering a reshuffle, with serious discussions underway about potentially removing Reeves as Chancellor. Sources within Whitehall indicate that the first six months of economic management have been rough and that a shake-up is seen by some as necessary to alter the current pessimistic trajectory and address declining poll ratings.

Bank Governor Andrew Bailey emphasized the cautious approach being taken, noting that both domestic measures and global developments—such as US tariffs and the possibility of a trade war—are being closely monitored. Bailey highlighted how these external pressures could have far-reaching negative effects on international economic growth and warned that the impacts on inflation remain uncertain as the situation evolves.