The future of the economy can sometimes be seen in minor gestures of a Bank of England governor, such as the arch of his eyebrows. So what to make of Andrew Bailey sporting a rather exuberant festive tie full of Christmas trees at the moment he delivered his so-called “Santa cut”?
It probably means nothing. Just maybe it is a sign that the timing and messaging behind this cut is designed to pump life into a “subdued” economy.
It was a narrow decision, with the governor as the swing voter after he said the UK had “passed the peak of inflation”, and the target of 2% now in sight in April rather than early 2027.
Mr Bailey was at pains to say the direction of travel next year remained cuts, but that decisions would now be a closer call.
“We’re going to come back to target sooner than we thought. So that’s encouraging. All of this is very encouraging, and for me certainly, you know, it was a strong basis to cut today,” he said.
“Looking forwards, I do think we’ll continue to have something of a gradual downward path… the calls do get closer.”
There has been a debate on the Monetary Policy Committee about what a normal level of interest would be, with some members seeing that as low as 3%. Markets interpreted the deliberations of the committee as meaning just two further cuts next year.
Much is up in the air, however, about what the committee said was a “lacklustre” economy, that they forecast is not growing in the current quarter.
The uncertainty around the Budget has now lifted, but businesses told the Bank there had been no rebound yet. The Leader of the Opposition, Kemi Badenoch, said that the cuts showed the economy was on “life support” and rate cuts were “CPR”.
Governor Bailey said the Budget measures aimed at containing inflation had helped the Bank’s decision to lower interest rates.
“It’s part of the reason I can be more confident inflation is going to come down sooner,” he said.
The governor has also identified an unusually high rate of savings as holding back the economy, driven by a lack of consumer confidence among older savers in particular. Rate cuts mechanically lower the incentive to save, and help spending.
He said he didn’t want to be “judgemental” about how much people save, but that it was true “how confident and cautious” people feel about the global and local economy does affect savings.
More economic policy stability, lower inflation and lower interest rates should help the economy gain some new momentum in the new year. It certainly needs it.
But it might take a lot more for the much-needed jolt of confidence and festive spirit to spread across the economy.
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