BoE just scuppered hopes of Jeremy Hunt cutting taxes

Bank of England raises interest rates to 4%

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That’s a shame because but we’re not going to get one this year, the Bank of England has just put paid to that.

Today’s decision to hike base rates for the 10th time in a row to four percent did not come as a surprise. Yet the consequences are shocking in a number of ways.

The first surprise is that savings rates are unlikely to climb, even though interest rates are going up by 0.5 percent. We have now reached peak savings rate as banks and building societies calculate that interest rates will start falling later this year.

They will continue their recent policy of cutting returns on fixed-rate savings bonds as a result.

The second surprise is a more positive one. Mortgage rates may not climb as high as many homeowners fear, and for the same reason. Banks reckon interest rates will soon peak so can afford to offer competitive fixed-rate deals.

We may soon see the strange spectacle of a five-year fixed-rate mortgage charging less than base rate.

Now for my final surprise, although I suspect you don’t want to hear this one.

The BoE has just destroyed any chance of Chancellor Jeremy Hunt treating us to a meaningful tax cut at his Spring Budget Wednesday 15 March.

Hunt might fiddle around with some marginal tax rule in the desperate hope of generating a positive headline next day, but trust me, it won’t be worth having.

Our Chancellor secured his post as a direct result of predecessor Kwasi Kwarteng’s disastrous mini-Budget.

On September 22, the BoE hiked interest rates by 0.5 per cent as it battled to cool the economy and curb inflation.

The very next day, Kwarteng unleashed the biggest tax-cutting drive since 1972, paid for by borrowing billions.

Bailey was slamming the breaks on while Kwarteng was hitting the accelerator.

This left the UK’s two leading financial figureheads in direct conflict with each other as they pursued contradictory policy goals at the same time.

I called it “car crash politics”, warning that Kwarteng and the BoE risked “driving the UK economy off the road by pulling in two different directions at the same time”.

The crash duly came, as Kwarteng careered into a ditch quickly followed by Prime Minister Liz Truss.

Bailey has ploughed on relentlessly since then, hiking rates again in November, December and now today.

Having watched Kwarteng crash and burn in real time, Hunt has learned his lesson. Don’t buck the Bank of England.

Minutes after today’s base rate decision, the Chancellor rushed out a statement declaring that HM Treasury is “in lockstep” with the BoE and this includes “resisting the urge right now to fund additional spending or tax cuts through borrowing”.

Tax cuts “will only add fuel to the inflation fire and prolong the pain for everyone”, Hunt added.

Cheekily, he still tried to grab the mantle of a tax cutter, by calling inflation a “stealth tax that is the biggest threat to living standards in a generation”.

If inflation halves this year, as anticipated, Hunt will no doubt claim the credit for it.

It won’t be a real tax cut, but it’s as close as we’re going to get this year.

From April 6 we will get a string of tax hikes instead.

Income tax thresholds will be frozen again, while capital gains tax and dividends tax allowances will be slashed.

These are real tax hikes, not pretend ones. And we’ll all be paying them.

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