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Labour is hoping to cut interest rates if it takes power next month in order to boost profitability and impress people.
Sir Keir Starmer and Rachel Reeves both suggested on Tuesday they expect interest rates to fall immediately if Labour wins the general election, arguing that Conservative policies would lead to higher borrowing costs.
Meanwhile, Conservative officials were believed to have dismissed the idea that a rate cut next week would boost the party’s fortunes in the July 4 general election.
Questioner I Asked if he could commit to cutting interest rates under a Labour government, Sir Keir replied: “Yes. We need to stabilise the economy in order to lower interest rates.”
“That’s why we’ve set out six steps that we will take on the first day, July 5, if we have the opportunity. Step one is to stabilize the economy. It’s for the same reasons I said that if we don’t get the economy under control, it’s the workers who are going to pay the price and I’m not going to do that.”
The bank will meet next Thursday to discuss whether to change interest rates, but most economists expect no changes at that point. The first cut after a series of hikes from 2021 to 2023 is seen as likely in August.
Shadow Chancellor Reeves told a press conference: “As an economist at the Bank of England for many years I can’t predict when interest rates will be cut, but I think after the previous rises I think many households will be very excited about a cut in interest rates.”
“The problem with the current Conservative manifesto is that it puts interest rate cuts at risk and actually makes interest rate rises more likely,” she has compiled a document arguing that the Conservative policies would raise interest rates and increase mortgage costs for the average household by £4,800 over four years.
A Conservative spokesman responded: “Once again, Ms Reeves has confused fact and fiction when it comes to figures. Rachel Reeves’ confused and panicked dossier is full of utter nonsense, concluding with the extraordinary claim that cutting civil servants to pandemic levels would cost the taxpayer £5.7bn.”
The Conservatives have previously expressed optimism that cutting interest rates would help their election prospects by convincing voters that living standards have improved significantly, but some now see this as unlikely because the effects of rate cuts take time to sink in. One source said that small cuts to interest rates earlier “wouldn’t have made any difference”, but added: “You can say rates will go down, because they will go down.”
A small increase in the unemployment rate seen this week may raise the chances of a summer rate cut, economists said. “Wage growth remains stubbornly elevated, but the labour market has eased and the unemployment rate has fallen from 3.8% to 4.4% over the course of several months,” said Thomas Pugh of RSM. He added that while the timing of the first rate cut remains unclear, “there is clearly an easing trend.”
Willem Buiter, a former rate-setter on the Bank of England’s Monetary Policy Committee (MPC), said: “The Bank Rate is unlikely to be cut at the next MPC meeting. If inflation continues to improve, August is completely up in the air. The 6% annualised rise in workers’ incomes in the three months to April should be a concern for the MPC, but other data suggests the Bank Rate will be cut by August at the latest.”
2024 Election
Rishi Sunak and Sir Keir Starmer are campaigning. I‘s general election live blog is the place to go for everything from party manifestos to candidate news and identifying the people who could decide the outcome of the election.
The Liberal Democrats published their manifesto on Monday, promising to build thousands of new council homes and hire more GPs, while the Conservatives also published their manifesto, including further cuts to the National Health Service.
Labour has announced several policies, including relaxing town planning laws to support prison expansion, ahead of its manifesto, which is due to be published later this week.
I has signed the Save Britain’s Rivers manifesto, calling on all political parties to commit to improving our waterways. The Liberal Democrats were the first to back the campaign, followed by the Green Party.