Interest rate reaction: UK economy ‘in a limbo period’ waiting for budget changes to take effect, says IPPR

Reacting to today’s decision by the Bank of England’s Monetary Policy Committee to hold interest rates at 4.5 per cent, Professor Ashwin Kumar, director of research and policy at IPPR, said:

“IPPR has long called for interest rates to be cut faster to help the economy grow. But today’s decision comes as the economy is in a limbo period: we know about tax rises that kick in next month - but we are still waiting for the positive effects of spending promised in the budget to kick in, also in the new financial year.

“It’s inevitable that businesses have a clearer view of the costs they face from higher taxation than of the likely increase in demand that will arise from higher public spending. This time lag between the news on tax and the economy sharing the fruits of higher spending has contributed to negative sentiment.

“We need to see and hear more about the government's plans for investment in transport and infrastructure because these are crucial to economic growth. They will also provide confidence that the taxation announced at the budget will pay dividends through higher growth in the future.”