Thursday evening news briefing: Large pay rises 'will force rates higher'

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Good evening. The Bank of England has predicted a shorter, shallower recession than previously feared, however, its Governor warned that interest rate rises may have to continue if pay keeps rising sharply in the face of surging inflation. In this newsletter, we also have a dispatch from Ukraine, after a missile strike left civilians trapped under rubble.

Evening briefing: Today's essential headlines

Case discontinued | Mason Greenwood, the Manchester United footballer, has had all criminal charges against him dropped after the CPS announced it was discontinuing the case. The 21-year-old was charged in October with attempted rape, engaging in controlling and coercive behaviour, and assault occasioning actual bodily harm. But a statement from Greater Manchester Police said criminal proceedings have now been discontinued.

The big story: Shorter recession, but not all good news

The Bank of England has forecast that the UK now faces a shorter and shallower recession than previously expected, but not all of its predictions were quite so positive.

The Bank’s prediction that the economy will shrink by 0.5pc this year and a further 0.25pc in 2024 is even worse than the IMF’s forecast of a recession in 2023 and slight growth next year.

Moreover, the UK economy is still expected to remain smaller than its pre-pandemic size by the middle of this decade. The Bank also revised down the economy’s growth potential for the next few years, signalling that shocks from the pandemic, Brexit and still-high energy costs would leave the economy with less room to grow.

Our economics editor Szu Ping Chan writes that this suggests policymakers will need to keep interest rates higher for longer in order to keep a lid on inflation. The Governor of the Bank of England, Andrew Bailey, said policymakers "will have to respond" if wage data and inflation continue to "overshoot", to avoid the risk of such a situation becoming permanent.

There was some more hopeful news, however, as officials at the central bank said the Government’s energy price cap would help to “limit the squeeze” on household spending.

Staff shortages also mean companies are more likely to keep workers on their payrolls than previously expected – with around 400,000 fewer people now forecast to lose their jobs during the downturn. Inflation is also expected to fall sharply this year, dropping from 11.1pc last October to less than 4pc by the end of 2023.

The changes to the outlook came as policymakers raised interest rates by 0.5 percentage points to 4pc. Officials voted by a majority of 7-2 to increase the Bank’s base rate, which is used by high street lenders as a reference point for thousands of savings and mortgage products - click here to find out when to fix your mortgage to beat rising rates.

Best savings accounts

The rise is the tenth straight increase and takes the interest rate to its highest level since 2008, when the global financial crisis was beginning to take hold. Mortgage rates have already been skyrocketing in the past few months and you can use our calculator to work out how recent shocks to the mortgage market might impact your monthly payments. The Bank's Governor has been under fire for allowing inflation to reach a 41-year-high of 11.1pc in October, more than five times the 2pc target. Matthew Lynn writes that keeping interest rates low while printing extra cash was always going to spark inflation. He argues that there was absolutely no evidence from today showing that the Bank has learned anything from the last few years. Rising interest rates are good news for savers, however, and here are the best savings accounts to profit from rising rates.

'Resist the urge' to cut taxes

Jeremy Hunt said he would "resist the urge" to cut taxes now in order to protect the fight against inflation, as he backed the interest rates rise. The Chancellor said he supported the move and that the Government would continue to ensure its decisions are in "lockstep with the Bank's approach". Mr Hunt said last week that it was "unlikely" that the Government would be able to announce "any significant tax cuts" at the Budget in March. Jack Maidment writes that the comments today appear to be a fresh attempt to manage expectations ahead of the Budget.

Comment and analysis

World news: Brutal aftermath of Kramatorsk strike

A Russian missile that struck a block of flats in eastern Ukraine on Wednesday night has left at least three people dead and 20 wounded, as rescuers comb the rubble for survivors. Roland Oliphant, reporting from the scene in Kramatorsk, writes that the missile might have had a specific target - perhaps one of the government and administrative buildings in the streets in Kramatorsk's small grid-pattern centre. Instead, it hit a yellow-painted, four-storey block of flats. Witnesses described a powerful shock wave that could be felt across town and which took internal doors off their hinges in neighbouring buildings.

Thursday interview

Jim Telfer: 'Scotland fans booing the national anthem was embarrassing'

The former captain and coach masterminded many of Scotland's greatest days with the oval ball including the 1990 grand slam winning team

Read the interview

Sport news: Borthwick opts for Smith-Farrell

Manu Tuilagi has been dropped by Steve Borthwick, as the head coach named a revamped side for England's Guinness Six Nations opener against Scotland. Tuilagi, a veteran of 50 caps and a regular choice for the Red Rose for much of the past decade, has not even been named in Borthwick's first 23-man squad. Joe Marchant takes the 31-year-old's place in the England line-up, with Marcus Smith and Owen Farrell to resume their playmaking axis for Saturday's Calcutta Cup clash at Twickenham.

Editor's choice

Ukraine | ‘Your training literally saved our lives’: the British soldier teaching Ukrainians how to fight

Art | Would you eat a Renaissance sculpture?

Travel | The fascinating story of London’s lost palace of luxury

Business news: BA bans staff from cockpit selfies

British Airways has been accused of gagging pilots and cabin crew with new rules that limit what they can post on social media. The UK flag carrier has written to its workforce to tell them that it is forbidden to use Twitter, Instagram, TikTok and Facebook while at work. British Airways insisted that the correspondence was merely a “refresher” of contractual terms and conditions on safety grounds. But staff claim it is a crackdown on the use of social media. Some of the airline’s pilots and cabin crew have built a significant social media presence by posting photos and videos during trips abroad.

Tonight starts now

The enduring appeal of the camel coat | Economists have long observed that in a downturn we are less inclined to spend on flash-in-the-pan trends. Instead, we’re drawn to classics – sartorial safe bets that will stand the test of time – and no item will live longer in your wardrobe than a camel coat.

Three things for you

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