Bank of England under pressure to cut rates as GDP sinks

The Bank of England faces pressure to cut interest rates after figures showed the economy contracted over the summer.

Office for National Statistics data showed gross domestic product (GDP) fell 0.1 per cent in the third quarter, revised down from an estimate of no growth.

The economy was flat between April and June but previous estimates had said GDP grew 0.2 per cent.

Analysts said the revised GDP figures put further pressure on the central bank to cut interest rates from 5.25 per cent.

Data this week, meanwhile, showed inflation dropped faster than expected to 3.9 per cent in November, down from 4.6 per cent.

Investors are pricing as many as six quarter-point rate reductions in 2024.

Richard Carter, head of fixed interest research at Quilter Cheviot, said: ‘This is going to ratchet the pressure up on the Bank of England to cut interest rates.

‘The Government would certainly like this, given 2024 is likely to be an election year, but ultimately the Bank of England will stick to the narrative of the job is not yet done and it is too early to be talking about rate cuts.’

Policymakers have previously warned that rates will remain high for longer as it aims to hit its 2  per cent inflation target.

Governor Andrew Bailey said earlier this month that ‘we’ve come a long way this year’ in the fight against inflation, adding ‘there is still some way to go’.

The Bank’s Monetary Policy Committee – which meets on February 1 – has held interest rates at their 15-year high at its previous three meetings. But some economists have said the Bank is risking reacting too slowly to falling inflation.