The Bank of England cut interest rates to 4% in response to sluggish economic data. But it also flagged a serious threat: a new wave of inflation driven largely by rising food costs.
The MPC’s split decision shows the difficulty of crafting policy in a volatile environment. Bailey and four others voted in favor of the cut, citing weak growth. The rest were more cautious.
Cocoa, coffee, and other key imports have seen prices surge due to global weather events. Meanwhile, UK domestic policy changes—like employer tax hikes and recycling fees—are increasing costs for local businesses.
The Bank’s latest projections show food price inflation reaching 5.5%, potentially reversing recent progress in taming overall inflation. This creates a dilemma for policymakers moving forward.
Despite the Chancellor’s claims of economic stabilization, many believe her policies are feeding inflation and slowing recovery. The BoE may now face a much tougher job.