The Bank of England has pushed the UK into recession by refusing to clearly communicate its plans to cut interest rates, a report on Wednesday warned.
The UK fell into a recession at the end of 2023, according to estimates by the National Institute of Economic and Social Research (NIESR), as GDP fell by 0.1% in part because of the Bank’s insistence high interest rates would not fall soon from their current 16-year high of 5.25%.
Ben Caswell, an economist at NIESR, said “a little bit of forward guidance may have helped tip [the UK] out of a technical recession”.
He added: “In comparison with the Federal Reserve or the ECB, the Bank of England has been a bit less communicative regarding when rate cuts are likely to take place."
“The Bank of England takes this stance where they say, ‘When is a rate cut going to happen? We follow the evidence and will make a decision when the time is right.’ Whereas if you look at the Fed, they say, ‘We think rate cuts are likely during a given period’.”
NIESR said it expected inflation to drop below the Bank’s 2% target in the second quarter of this year when the energy price cap falls again.
This will prompt the Bank of England to start a series of rate cuts in May, the think tank said, taking its base rate to 3.25% by early 2026.