Business Maverick

Business Maverick

BOE rate decision set to cap tumultuous week for UK and Sunak

BOE rate decision set to cap tumultuous week for UK and Sunak
Rishi Sunak, UK prime minister, during a joint news conference with Ursula von der Leyen, president of the European Commission on Monday, 27 February 2023.

The Bank of England is expected to push through yet another increase in interest rates, one of the key events set to shape a turbulent week for the UK economy and Prime Minister Rishi Sunak.

With markets roiled by the rescue of Credit Suisse Group AG, policy makers in government and at the central bank are set to explain their handling of the economy in a series of high-profile appearances. 

What unfolds will be crucial both for the outlook for the economy, which is struggling to avoid a recession, and for Sunak’s government in the leadup to an election that could be a little more than a year away.

What’s happening this week:

Budget debate

Chancellor of the Exchequer Jeremy Hunt on Tuesday will continue his efforts to sell his budget programme to members of Parliament. Treasury plans to pump about £22-billion a year into the economy ran into controversy because of a decision to hand benefits to wealthy savers and motorists instead of public-sector workers upset that their wages are falling behind the rate of inflation.

Legislators debate the package this week, with Hunt scheduled to testify on Tuesday. The Treasury Committee will also hear from economists and the Office for Budget Responsibility later in the week. 

Members of the governing Conservative Party want tax cuts while the Labour opposition is prodding for the government to settle strikes crippling railways and the National Health Service.

Northern Ireland

Sunak’s effort to smooth the trading relationship with the European Union erupts onto the agenda on Wednesday, with legislators set to vote on elements of a deal the government made over border arrangements in Northern Ireland.

The concern is that the Conservative government may have to rely on backing from Labour to pass the package. The Democratic Unionist Party is preparing to object to the deal, the Telegraph reported, and some Conservative members of Parliament also have concerns.

Partygate probe

Also on Wednesday, former prime minister Boris Johnson mounts his defence against allegations he tolerated gatherings at his office in 10 Downing Street during the pandemic when lockdown rules were in force.

Johnson will testify to legislators after submitting written comments that may be made public ahead of the hearing. Former chancellor Kwasi Kwarteng told the GB News he would “never rule out” Johnson returning to lead the Tories if he’s cleared of wrongdoing. He also could be suspended from Parliament and face a recall vote in his district.

Rates decision

Just two weeks ago, the BOE was all but certain to deliver another quarter-point increase in its benchmark lending rate to 4.25%, continuing its quickest tightening spree in three decades. Now, with unease about the stability of the global banking system rattling markets, investors say that call is on a knife edge.

Governor Andrew Bailey has signalled he may be prepared to pause rate increases, though others on the nine-member Monetary Policy Committee, like Catherine Mann, say persistent inflation remains a threat.

The question for the central bank is whether financial stability concerns mean that policy makers should take a step back from rapid rate rises. The European Central Bank pushed forward with an increase last week during the height of uncertainty over Credit Suisse. The US Federal Reserve will announce its decision on Wednesday night.

Other events:

  • Inflation figures due on Wednesday are likely to show consumer price growth slowed to 9.9% in February — the first single-digit reading in six months.
  • Home Secretary Suella Braverman is due to speak in Parliament on Monday. Officials aim to deport asylum seekers to Rwanda as early as this summer.
  • Michael Gove will speak about the government’s “levelling up” agenda on Wednesday, with concerns mounting that sputtering growth will leave areas outside of London further behind. BM/DM

 

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