Economy above expectations, No 10 says despite Bank governor’s growth concerns

The UK economy will continue “outperforming expectations”, Downing Street insisted after the head of the Bank of England (BoE) expressed concern over the growth outlook.

Governor Andrew Bailey suggested the economy’s potential to grow was among the worst he had seen in his lifetime.

Chancellor Jeremy Hunt used his autumn statement last week to announce a national insurance cut and tax breaks for firms in an attempt to revive growth.

But the Office for Budget Responsibility downgraded its forecasts for the coming years and predicted that inflation would be “more persistent” in 2024 than it had anticipated.

As Rishi Sunak was holding a major summit aimed at attracting investment to the UK on Monday, Mr Bailey gave a gloomy assessment of the economy’s productivity.

“It does concern me that the supply side of the economy has slowed,” the central bank chief told local news website Chronicle Live during a visit to the North East.

“If you look at what I call the potential growth rates of the economy, there’s no doubt it’s lower than it has been in much of my working life.”

The governor repeated his warning that interest rates would not be cut in the “foreseeable future”, after he recently declared it was “much too early” to say inflation had been beaten and to start talking about slashing rates.

Global Investment Summit
Rishi Sunak said efforts to attract global investment to Britain were central to his growth plan (Stefan Rousseau/PA)

Asked about Mr Bailey’s remarks, the Prime Minister’s official spokesman told journalists: “We do believe that we have turned a corner, particularly given the success in halving inflation.

“And you saw an autumn statement which was designed to boost the UK economy with new policies like full expensing, which was long called-for by businesses, and we are confident that as a result we will keep outperforming expectations.”

Pressed on whether Mr Bailey was wrong to make the comments, the spokesman replied: “That’s not what I said,” as he declined to criticise the governor of the independent central bank.

Mr Bailey has repeatedly suggested the threat of UK inflation is being underestimated.

Consumer Prices Index (CPI) inflation fell to 4.6% in October from 6.7% in September, according to official figures.

UK annual inflation rate
(PA Graphics)

It prompted the Government to claim that it had met its inflation target early, having pledged to bring down the level to below 5.4% by the end of the year.

But it is still far above the Bank of England’s 2% target and Mr Bailey warned lowering inflation further would require “hard work”.

“I’m very conscious of the position of the less well-off but we do have to get it down to 2% and that’s why I have pushed back of late against assumptions that we’re talking about cutting interest rates or we will be cutting interest in anything like the foreseeable future because it’s too soon to have that discussion,” he said.

Mr Sunak’s spokesman acknowledged there was no “glide path” to the 2% target, adding the Government will “maintain fiscal discipline on things like pay awards and elsewhere so that we can continue to reduce inflation”.

He insisted the autumn statement was “not an inflationary package” when asked about concerns the national insurance cut could make the Bank of England’s job of reducing inflation harder.