Tory MPs urge Bank of England to cut interest rates in May for election boost

Conservative MPs have urged the Bank of England to bring down interest rates as soon as possible after the base rate was held at 5.25 per cent.

Bank governor Andrew Bailey fuelled hopes of a cut within the next few months after saying “we are on the way” to a downward turn thanks to a faster than expected fall in inflation last month.

But many Tory MPs want the monetary policy committee to reduce the rate at its next meeting in May – allowing voters to feel the benefit before the general election later this year.

There is even speculation among economists that there could be two cuts before an October or November polling day, allowing Rishi Sunak to go to the country with a rosier economic outlook than at the end of 2023.

Former Cabinet minister Sir Jacob Rees-Mogg said the Bank should reduce rates as soon as possible. He added: “Inflation is a lagging indicator so the Bank ought to act preemptively.”

The prospect of a looming rates cut this spring was raised when, for the first time since September 2021, no members of the monetary policy committee voted to increase rates.

Harriett Baldwin, the Conservative chairman of the Treasury select committee, said: “It is now a matter of when, not if, the independent Bank of England cuts rates.

“I note that unlike at the last meeting all members of the monetary policy committee voted to stay put bar one vote to cut.

“Core services inflation is still running at over 6 per cent which is no doubt why the majority voted to keep rates the same.”

In an interview with broadcasters, Mr Bailey said last month’s fall in inflation to 3.4 per cent was “very encouraging and good news” and that inflation would not need to fall to the Bank of England’s target of 2 per cent before rates came down.

He said: “We don’t have to actually get inflation all the way back to target… to cut rates for instance, what we have to do is be convinced that it is going there.

“We should act ahead of time in that sense because we have to be forward looking.

“We do need to see further progress, but I do want to give this message very strongly: we have had very encouraging and good news, so I think you know we can say – we are on the way.”

Government insiders played down any suggestion of tensions between ministers and the Bank of England after rates were held for the fifth consecutive time, despite a significant drop in inflation in the last 12 months.

A Treasury source said the government would “support whatever steps the BoE deems necessary”.

And Downing Street said Mr Sunak had full confidence in Mr Bailey.

The Prime Minister’s official spokesman said: “Interest rates are rightly a decision for the independent Bank of England.

“With inflation dropping to 3.4 per cent, real wages rising, mortgage rates starting to fall, there’s clear sign that the economy has turned a corner after the shocks of the last few years.”

The Institute for Public Policy Research (IPPR) think tank warned that economic growth risked being hampered without a faster cut to interest rates.

Carsten Jung, senior economist at the IPPR, said: “Inflation is coming down more quickly than many predicted just a few months ago.

“This is largely due to global supply chains recovering and energy costs falling, but also domestic price pressures are falling quicker than the Bank had anticipated.

“All this shows the Bank tightened the screws too much, which is squeezing much needed future growth.

“The Bank should thus cut rates more quickly than its current plans.

“The tightening stance by both the Chancellor and the Bank of England contribute to the UK’s growth falling far behind the USA’s fast recovery.”