Monetary policy
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Macroeconomic policy

The art of expectations management

A bleak outlook from the Bank of England as it scales back rate hike expectations

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The Bank of England has raised rates by 75 basis points today – the eighth successive increase and the largest since 1989 – to 3 per cent, the highest since November 2008. Despite this historic rise, the big news was that the Bank signalled very clearly that market expectations for further rate rises had gone … Continued

Slower for longer

The Bank of England tightens monetary policy again and warns that the outlook is bleak

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The Bank of England today unveiled the biggest rise in interest rates since 1995 along with plans to bring down the stock of Quantitative Easing (QE) by £80 billion over the next year. But the real news in today’s announcements was the extent to which the central bank expects the cost of living crisis to … Continued

In the dread of winter

Prospects for inflation in the coming months ahead of the Bank of England’s Monetary Policy Report

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In the face of the highest inflation rate for 40 years, many are predicting that the Bank of England will announce the largest interest rate rise in 27 years this week. This spotlight focuses on the challenges and uncertainties facing both the Bank of England and UK families from rising inflation this winter. Contrary to … Continued

Monetary policy
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Economy and public finances
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Tax
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Macroeconomic policy
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Political parties and elections

Talking tax

What’s been said and what’s gone unsaid in the Conservative leadership election?

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Elections are rarely entirely about a single issue, but there are exceptions. Brexit in the 2019 general election stands out, and today tax cuts totally dominate the 2022 Conservative leadership election. Judging by last night’s TV debate, the contest is staying that way, with little discussion of the huge questions facing the country, from the … Continued

As good as it gets?

The forces driving economic stagnation and what they mean for the decade ahead

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With inflation at levels not seen since the early 1980s, it is clear that the UK is in the midst of a huge hit to real incomes. But the seeds for the devastating impact of the cost of living crisis were sown by a slump in growth that is unprecedented in the post-war period and … Continued

Cap off

Understanding the April 2022 inflation release

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Inflation reached a 40-year high in April off the back of a sharp rise in energy bills and the highest food price inflation in a decade. These recent drivers of inflation mean that lower-income families are facing the most severe cost pressures, with their inflation rate already hitting double digits. Families are already responding to … Continued

Monetary policy
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Fiscal policy
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Macroeconomic policy

Crunch time

Bank of England raises rates again and signals cost of living crisis is set to deliver a £1,200 hit to incomes

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Today the Bank of England’s Monetary Policy Committee raised rates at a fourth successive meeting – a first in the 25 years since it was granted independence – to 1 per cent, a level not seen since the financial crisis. The direct impact of this change in rates on households will be small in the … Continued

Monetary policy
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Macroeconomic policy

Macroeconomic Policy Outlook: Q1 2022

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2022 is shaping up to be difficult year for policy makers at the Bank of England. While the fastest recovery from a recession since the war is clearly good news, its unbalanced nature at home and abroad has led to a surprising and precipitous rise in inflation. The rise in inflation reflects a mismatch between … Continued

Monetary policy
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Macroeconomic policy

What goes down must come up

The Bank of England becomes the first major central bank to raise rates but impact will be small with fiscal policy key to Omicron response

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The Bank of England performed a ‘bait and switch’ by not raising rates in November when many people expected they would, but then raising them today when many thought the rise of Omicron would mean that they would wait to see the impact of the new wave. Many commentators have focussed on the high current … Continued

Macroeconomic Policy Outlook Q1 2021

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In this edition of our regular Macro Policy Outlook, we focus on the single biggest measure announced in the recent Budget to boost business investment, a long-running part of the UK’s macroeconomic weakness. The Government’s ‘super deduction’ policy is an innovative way to achieve this, allowing firms to write off an unprecedented 130 per cent … Continued

How to throw good money after good

Budget 2021 and the challenge of delivering a rapid recovery from Covid-19

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While the strength of the economic recovery from Covid-19 will depend on the vaccine rollout and the Government’s ‘road map’ for easing social distancing restrictions, it will also depend on decisions taken at the Budget which are the economic counterpart to that reopening plan. This paper assesses the economic context to the Budget: how the … Continued

Macroeconomic Policy Outlook Q4 2020

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This is our regular Macro Policy Outlook, providing a policy-focused take on the economy. In this edition, we focus on the labour market, and the prospects for unemployment.   This edition of the Macro Policy Outlook looks ahead to prospects for 2021. The early months of next year will pick up where 2020 left off, … Continued

Unhealthy finances

How to support the economy today and repair the public finances tomorrow

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This report provides analysis of the dual challenges faced by the government: ensuring that there is sufficient fiscal support through the crisis and recovery, and setting fiscal policy on a sustainable long-term path. Some argue it is unsustainable to provide the massive government support during the crisis, while others see little constraint on government borrowing … Continued

The Bank of England’s options for supporting the economy

Lessons from the US

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Ahead of this week’s Monetary Policy Committee meeting, we discuss what recent changes to how US policy makers approach setting interest rates might tell us about what additional support the Bank of England could provide in the face of a second national lockdown. The most important change was the introduction of a ‘flexible average inflation … Continued

Act now, or pay later

The OBR’s Fiscal Sustainability Report makes clear the implications of a crisis-driven rise in unemployment for the public finances

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The OBR’s latest Fiscal Sustainability Report confirms its view that the current crisis could lead to the largest economic contraction in 300 years precipitating a return of unemployment levels not since the 1980s. Given the huge uncertainty, the OBR has produced three scenarios with different assumption about a timetable for finding a vaccine or other … Continued

Summer Economic Update July 2020

Resolution Foundation overnight analysis

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This was not a Budget, but was still a big deal with £30bn of measures to support the economy. This is particularly significant when seen in combination with £160bn of pandemic-related support already announced, leaving borrowing this year on course to reach £350bn. Debt interest costs will continue to fall, although the crisis will leave … Continued

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