Economists have suggested the answer is yes.
While there has been much talk of tax rises next Wednesday to fill what Labour has called a £22bn black hole left by the Tories, analysts at Pantheon Macroeconomics think Chancellor Rachel Reeves is also planning to increase borrowing.
This “loosening” of fiscal policy could lead to caution from the Bank of England, they say.
“We expect Ms Reeves to raise government borrowing by an average of £17.2bn per year—0.5% of GDP—over the next three years,” says Pantheon.
“That borrowing will primarily be used to fund increased government investment.
“We estimate that looser fiscal policy… will boost GDP by 0.5% in 2025-26.”
What’s more…
“Some of Ms Reeves’ policies will likely have direct inflation-boosting consequences; we expect her to raise fuel duty by 7p per litre in April, while higher employer national insurance contributions would be partially passed on to prices and would cut hiring.”
All of which means, Pantheon says, “we expect the budget to keep the MPC from accelerating rate cuts”.
In practice, they say that could mean rates land 0.25 or 0.5 basis points higher than some have expected.
We’ve had numerous forecasts for where that landing point may be by the end of next year – many around 3.5% but one, from Goldman Sachs earlier this week, as low as 2.75%.
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