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The Trades Union Congress is urging the Bank of England to cut interest rates and rekindle economic growth, pointing to analysis showing that cash-strapped consumers are lagging their international peers.
The Bank’s monetary policy committee voted 5-4 to leave borrowing costs unchanged this month, after six cuts since mid-2024.
Some members of the committee remain anxious about the risks of high wage growth unleashing a fresh bout of inflation, but the TUC argues that weak growth should be the more pressing concern.
Paul Nowak, the TUC’s general secretary said: “The Bank of England has a crucial role to play here. Last year they were overly cautious and too slow to act. They should go for growth with a sequence of quick-fire cuts this year.
“Lower interest rates would help households and help the high street – putting money in people’s pockets to spend in shops and restaurants, and boosting confidence for consumers and for businesses.”
Official data showed GDP expanded by just 0.1% in the final quarter of last year. The TUC said that was because consumer demand was being depressed by high borrowing costs, with the Bank’s base rate set at 3.75%.
Its analysis shows consumer demand has grown more slowly in the UK over the past three years than in 32 of the 37 industrialised economies in the Organisation for Economic Co-operation and Development – many of which have still achieved low inflation.
And while consumer demand has generally accounted for two-thirds of economic growth since the 2008 financial crisis, the TUC said that over the past two years it made no contribution at all.
The Bank is widely expected to cut rates at its next meeting in March after this month’s close vote, but markets are not expecting a repeat of last year’s run of reductions.
Rachel Reeves, the chancellor, sought to open the way for further cuts with policies in her November budget designed to bring down inflation – including by cutting energy bills from April. The monetary policy committee has said that should help to bring inflation back down to the 2% target by the spring, from 3.4% in December.
However, some businesses have said that Reeves’s decision to raise employer national insurance contributions and the national minimum wage contributed to inflation as employers sought to pass on the costs through price rises.
Huw Pill, the Bank’s chief economist, said on Friday he believed interest rates were already “a little bit too low” and that “underlying” inflation was probably 2.5%, once the impact of Reeves’s price-cutting policies were taken out of the equation. Data on the jobs market and inflation will be published this week.
After a fortnight of Labour party turmoil, the chancellor is determined to show she will stick to her growth strategy, which involves boosting infrastructure investment and liberalising planning reforms as well as tackling inflation.
She plans to give a low-key Commons statement on 3 March responding to updated economic forecasts by the Office for Budget Responsibility – in contrast to last year’s spring statement, when she made hasty welfare cuts that were subsequently reversed.
Reeves will then make a speech later in the spring reiterating her commitment to what she has called “securonomics”, which combines an activist industrial policy with supply-side changes such as cutting red tape.
Responding to the lacklustre recent growth figures, Reeves said: “I’m confident that the decisions that we have made to return stability to the economy, to bring investment to our economy, and the changes we’re making around planning and regulation will help deliver stronger growth this year.”
Labour’s economic policy would be likely to feature heavily in any leadership contest. City analysts are weighing up the probability that some candidates would pursue more relaxed tax and spending policies, with knock on effects for government bond markets.
