Bank of England spokesman hints at interest rate changes as UK faces recession

Jonathan Haskel has been hawkish on rate hikes, voting four times since August to raise the bank rate to 5.5%

One of The Bank of England's most hawkish policymakers have signaled it will stop calling for interest rate hikes if inflation continues to fall.

Jonathan Haskel, who has been pushing for further rate hikes, said he was encouraged by last month's data: a «broad-based» decline in inflation as more reliable indicators of price changes also begin to weaken.

It comes as officials data showed the UK is on the brink of recession, bolstering bets that the Bank will start cutting interest rates in May.

The economy shrank by 0.00 between July and September, according to the Economic Affairs Authority. 1%. The ONS previously recorded zero growth for the period.

While the Imperial College Business School professor, who has voted four times since August to raise interest rates to 5.5% from 5.25%, insisted he would not change his position «on the basis of one month's data», the gloomy economic backdrop will add pressure. on the Bank to reduce rates to give impetus to growth.

Ellie Henderson, an economist at Investec, said a winter recession was now «much more likely» after the economy contracted 0.3% in October. Another quarter of economic contraction would be the first technical recession since the first pandemic lockdown.

Inflation, as measured by the consumer price index (CPI), fell to 3.9% in November from 4.6% in October. prompting a stock market rally and forecasts for further cuts in mortgage rates in the New Year.

Mr Haskel said another closely watched measure of service sector inflation, which excludes volatile factors such as airfare also showed a noticeable decrease.

He wrote on social network X, formerly Twitter, that it was «news» because the decline was more «widespread» than in previous months.

Updated ONS data on Friday also showed that between From April to June, the economy performed worse than expected.

Instead of growing by 0.2% in the second quarter, as the ONS previously expected, the economy has stabilized.

Barclays has joined a growing chorus of economists saying who put forward their expectations of rate cuts.

Jack Maining, chief UK economist at Barclays, said: “Inflation is falling faster than expected. Sluggish growth and new evidence that the labor market is becoming stagnant lead us to push back the timing of the first cut by 25 basis points from August to May 2024.”

Barclays believes rates will fall to 3.25% by early 2025.

The growth figures show the impact of high interest rates on UK households and will come as a blow to Prime Minister Rishi Sunak, who earlier this year made expanding the economy one of his five key promises.

They also mean Britain's recovery from the pandemic is now worse than any other G7 economy except Germany.

Jeremy Hunt, the chancellor, insisted that «the medium-term outlook for the UK economy is far more optimistic than these figures suggest.»

In a more encouraging sign, store sales rose more than expected in November as Black Friday deals boosted spending on toys and cosmetics ahead of Christmas.

Retail sales volumes rose 1.3% in November , according to the ONS, which was well ahead of analysts' expectations of 0.4%.

October sales growth was also revised to 0% after the ONS previously reported sales fell 0.3% .

Darren Morgan, director of economic statistics at the ONS, said: «Retail sales rose strongly in November as big Black Friday discounts encouraged shoppers to spend.»

But Mr Morgan warned: «It's still difficult time for retailers.”

In the quarter, retail sales fell 0.8% in the three months to November. Sales were also still below pre-pandemic levels.

Non-food sales volumes were down 2.7% on pre-lockdown levels.

PwC's Lisa Hooker said: «Despite Despite the overall improvement in sales last month, Christmas is likely to continue to be a drag on retailers.”

PwC warned that consumers are planning to spend less than usual in the run-up to Christmas due to rising costs of living. This increases the likelihood that stores will have to use Boxing Day sales to clear out seasonal stock, Ms Hooker said.

“The Golden Quarter will be a disappointment for many retailers,” she added, referring to the traditional festive sales season.