Bank of England’s tepid rate cut risks prolonged stagflation, warns deVere CEO
The Bank of England’s hesitant approach to tackling the UK’s economic malaise is setting the stage for prolonged stagnation, warns Nigel Green, CEO of global financial advisory giant deVere Group.
The Monetary Policy Committee (MPC) voted 7-2 to cut rates by a modest 25 basis points to 4.5%, despite slashing its growth forecast for 2025 in half. Two dissenting members called for deeper cuts, but the majority, “paralyzed by inflation fears, opted for an ineffectual middle ground,” says Nigel Green.
“This is a policy failure. The Bank of England has backed itself into a corner where it is too scared to cut rates aggressively due to lingering inflation, yet it also sees clear evidence that the economy is grinding to a halt. By trying to do both, it achieves neither—ensuring stagflation takes hold for a prolonged period.”
Bank staff now expect the economy to expand by just 0.75% this year, down from a prior forecast of 1.5%, a brutal downgrade that underscores the damage being done.
Meanwhile, the UK faces a £40bn tax squeeze, further choking consumer and business confidence.
“This was the moment to act decisively, to drive growth and give businesses and households the breathing room they desperately need,” the deVere CEO continues.
“Instead, the MPC has delivered a lukewarm response that could prolong economic pain. The UK is heading straight into stagflation, where growth stagnates but inflation remains stubbornly high.”
The two MPC members who pushed for a larger 50bps cut recognize the urgency of the situation. But their voices were drowned out by a committee too afraid to move boldly.
“The result? A policy that is neither tackling inflation effectively nor supporting economic expansion.
“This half-hearted rate cut will do little to improve market confidence. Investors should be positioning now for an era of lower growth and persistent inflationary pressures. The winners will be those who take proactive steps to hedge against these risks while seizing opportunities in inflation-resistant assets.”
The Bank of England faces a critical test in the coming months.
“If it continues with its muddled, indecisive policy path, the UK economy could be condemned to years of stagnation.”