The Bank of England has heaped more pain on Rachel Reeves

By holding interest rates at 4 per cent, governor Andrew Bailey has denied the chancellor a spoonful of sugar to make the harsh medicine of the Budget go down, says James Moore

If Rachel Reeves were more like Donald Trump, she’d be railing against the Bank of England right now, and especially its governor Andrew Bailey.

Make no mistake, Andrew Bailey was the swing vote who ensured that the hawks carried the day in a 5-4 split vote of the Bank’s Monetary Policy Committee (MPC) that left base rates at a restrictive 4 per cent – in other words, holding. The decision denied Reeves what would have been a very handy spoonful of sugar to make the bitter pill of a tax-raising budget go down a little easier.

Reeves’ first appointment to the MPC, external member Alan Taylor, did his bit for her by remaining in the doves camp, as did their spiritual leader Swati Dhingra. Joining them were Dave Ramsden, Bank deputy governor for markets and banking, and Sarah Breeden, deputy governor for financial stability.

Chancellor Rachel Reeves will be casting a filthy look at the Bank of England for holding interest rates at 4 per cent (Stefan Rousseau/PA) (PA Wire)

On the other side were the long-time external hawks Catherine Mann and Megan Greene, along with the Bank’s chief economist Huw Pill, who has made his position very clear in recent speeches, and Clare Lombardelli, the deputy governor for monetary policy.

Bailey carried the day for this group, who all fear that more work needs to be done to kill Britain’s inflationary dragon, with the headline rate sitting at an uncomfortably high 3.8 per cent when compared to the MPC’s 2 per cent target.

In a welcome innovation, given the split in opinion, each member set out the rationale behind their respective decisions in the MPC minutes. On the other hand, some of these terribly clever people need to spend some time learning to speak plainly so that the public on the receiving end of their decisions can better understand their thought processes.

Bailey, in particular, was guilty of the sort of word salad that even Trump’s notoriously verbose rival, Kamala Harris, would have baulked at. “In assessing the outlook, I find the mechanisms underlying upside risks less convincing than those underlying the downside,” he said. “Previous negative labour supply shocks could be less important for the trajectory of inflation today.”

Tell us how you really feel, governor. I’ve met Bailey. He is quite personable. He didn’t feel the need to blind me with eco-speak during our chat. Of course, he didn’t. He’d send anyone sitting down to dinner with him to sleep if he did. There is no reason for this sort of verbiage. We know how smart these people are. They don’t need to prove it to anyone.

Bailey swung the vote because, while inflation came in below the City and the Bank’s forecasts last time, and while the Bank’s forecasts are now lower, he wants to see more evidence that the pressures pushing inflation in a northerly direction have eased and the numbers are showing more sustained improvement before cutting.

If the next set of data is good, there is a very high chance of a cut in December. Or, in Bailey-speak, “I see further policy easing to come if disinflation becomes more clearly established in the period ahead.”

Small businesses and people looking for mortgages can expect relief to come, just not as quickly as they were probably hoping. The economy certainly needs all the help it can get.

It isn’t just monetary policy battering it. Reeves raising taxes, and allowing speculation about how bad it could get to fester for weeks on end by holding the Budget late, has left UK plc dragging a gigantic lead-weight around behind it. “Activity is subdued,” fretted Ramsden, who also raised the issue of rising unemployment. No wonder consumer and business confidence are at rock-bottom levels, severely impeding the growth Reeves keeps telling us she wants but seems determined to strangle at birth.

Bailey is helping her with that. I understand his concerns about inflation. It is devilishly difficult to get rid of once it gets established, as recent history shows us.

However, with the Bank’s inflation forecasts easing, I nonetheless think Bailey swung the MPC the wrong way. And I suspect Reeves is quite cross about that.

“Under this government, we have seen five interest rate cuts that have helped bring down costs for families and businesses, and today's forecast shows that inflation is due to fall faster than previously predicted,” she said. Note that last point. Translation: Governor, you could and should have cut – and I’m pretty damn furious.

I agree that he should have backed a cut. Now we’re going to have to live with the consequences of his mistakes as well as the chancellor’s.