UK Chancellor Directs BoE to Target Inflation in November Budget

El Canciller del Reino Unido ordena al Banco de Inglaterra enfocarse en la inflación en el próximo presupuesto de noviembre.

Política monetaria bajo escrutinio

El gobierno presiona al banco central para que priorice la estabilidad de precciones mientras la economía navega aguas turbulentas. Una jugada clásica: políticos pidiendo soluciones rápidas para problemas complejos de décadas.

¿Inflación vs. crecimiento?

El mandato llega en medio de presiones contradictorias—contener la inflación sin estrangular el crecimiento económico. El BoE camina sobre la cuerda floja de la política monetaria, como siempre.

Los mercados observan

Los inversores analizan cada movimiento, buscando señales de dirección futura. Porque en el mundo de las finanzas tradicionales, siempre se necesita un chivo expiatorio cuando las cosas se complican.

Rachel faces backlash over tax hike and wage policy

Rachel has faced heavy criticism over last year’s budget, where she raised payroll taxes by £26 billion and increased the minimum wage. Businesses say they were forced to raise prices to stay afloat and warned her not to push more costs onto them in November.

The Bank of England said the rise in inflation was being driven by food prices and other regulated costs like water bills and the Vehicle Excise Duty. In his letter, Bailey told Rachel that the effect of the tax hike was still being felt, writing:

“A reduction in total labor cost growth also appears to have been delayed by the increase in employer National Insurance Contributions and pay growth in sectors with a large share of employees at or close to the National Living Wage.”

Rachel is reportedly reviewing a plan to cut VAT on household energy from 5% to zero, which could be included in the upcoming budget. That’s according to the Sunday Times. The goal is to reduce the burden on consumers and prevent further price spikes.

But the Bank is worried that food inflation — currently at 4.8% — is sticking around too long. The concern is that price increases in essential goods could feed into wage demands, triggering second-round effects that keep inflation high.

Rachel, however, said in her letter that she believes the current jump in inflation is temporary and told Bailey she understands the reasoning behind his outlook. “Low and stable inflation is essential for long-term economic growth and sustained increases in living standards,” she wrote.

BoE slows bond sales as mortgage pain grows

The decision to hold interest rates is a major blow to homeowners, especially those on variable-rate mortgages or those about to exit fixed deals. The expectation of lower monthly payments just got pushed further out.

Bailey explained the move by saying, “We are not out of the woods yet,” and warned that “any future cuts will need to be made gradually and carefully.”

Another big development was the Bank’s move to slow down the pace of quantitative tightening. The Bank had been reducing its balance sheet by selling off £100 billion worth of UK government bonds each year.

That number is now being lowered to £70 billion. This means fewer auctions of long-term UK debt. Bailey said this change was made to help bring inflation down “while minimising the impact on gilt markets.”

This entire back-and-forth came after the Bank released its forecast showing inflation moving further away from the 2% target. Rachel responded by promising to include fresh anti-inflation measures in the November budget. She said the government is looking for solutions now, not later. “We have asked Cabinet to work with their officials to look at what further action can be taken ahead of the budget in November,” she wrote.

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