This is a crunch week for the UK economy – and likely the housing market too – with a meeting of the Bank of England’s Monetary Policy Committee, followed by an emergency Budget statement.
At the MPC it is expected that interest rates will be raised for the seventh consecutive time as the bank seeks to control inflation.
Most economists expect the BoE to lift the base rate from its current 1.75 per cent to at least 2.25 per cent and possibly 2.5 per cent.
Inflation – currently at 9.9 per cent – is the highest in the G7 group of leading economies and almost five times the bank’s official target.
The MPC meeting on Thursday is followed 24 hours later by an Emergency Budget from new Chancellor Kwasi Kwarteng.
Sarah Coles, senior personal finance analyst at business consultancy Hargreaves Lansdown, says: “We’ll see a major change of direction in this Mini-Budget, as Kwasi Kwarteng drives his growth agenda, fuelled by deregulation and tax cuts, in the belief it will ease the cost-of-living crisis and boost growth.
“But while it’s likely to offer immediate easing of the squeeze on household budgets, only time will tell whether it will improve the landscape for good, or steer us into dangerous territory.
“Tax cuts will help us all in the immediate future, cutting our outgoings during a time of runaway inflation. It is being done in the belief that this will then help people spend more and companies invest more, both of which would support growth. However, this comes at a cost, and there’s the risk it could end up damaging our financial resilience over the longer term.”
Coles says there are five possible tax measures to look out for:
– Cuts to National Insurance. This was something Liz Truss repeatedly pledged during the leadership contest, so is bound to be a key priority.
– A mention of removing green levies on energy bills. This has already been announced as part of the Energy Price Guarantee.
– Possible cuts to VAT. The idea of a cut emerged during the summer, with some suggesting the 20 per cent rate could be cut to 15 per cent.
– There may be a pledge to review the current tax system – including inheritance tax.
– There could be reference to possible tax breaks for people who take time out of work for caring responsibilities.
One part of the property industry has already spoken out against any possible rate rise.
Issuing an SOS to the Bank of England, the National Association of Property Buyers spokesman Jonathan Rolande says: “Consumers have already begun to cut back on spending. This is exactly what the Bank of England wanted to see and we should now see inflation drop over the coming months.
“I hope that in light of increased energy costs and indeed everything else as we approach winter, interest rates are not increased. The mortgage market is split into three, with a third having no mortgage, a third on fixed rates and a third on variable rates.
“Another increase in rates will only affect this smaller section of the market who are more than likely already cutting back on whatever they can. The very crisis caused by inflation may be key to the economy stabilising as all unnecessary spending stops. More interest rate rises may push those ‘just about managing’ over the edge.”
