Bank of England cuts interest rates

The Bank of England (BoE) cut interest rates again in November, with the Bank Base Rate being cut from 5.0% to 4.75% (Figure 1). This is the second cut in interest rates by the BoE this year.

Figure 1:

Alongside this decision the BoE published its November 2024 Monetary Policy Report, which sets out its thinking around the performance of the economy underlying their Monetary Policy Committee’s decision on interest rates. This noted three key judgments. First that “four-quarter GDP growth is expected to pick up to almost 1¾% in the first part of the forecast period, before falling back slightly”. Secondly that “a margin of economic slack is projected to emerge during 2026 in part reflecting the overall tightening in the stance of fiscal policy assumed in the Budget”. And thirdly “second-round effects in domestic prices and wages are expected to take somewhat longer to unwind than they did to emerge”. Given this the BoE expects inflation to rise over the next year to around 2¾% before dropping back to the target rate of 2% after that.

UK inflation picks up sharply in October

Despite the BoE cutting interest rates, data from the Office for National Statistics (ONS), published this month, showed that Consumer Price Index (CPI) inflation rose sharply in October. CPI inflation increased from 1.7% in the year to September to 2.3% in the year to October (Figure 2). The ONS observed that the largest upwards contribution to inflation came “from housing and household services, mainly because of electricity and gas prices; the largest offsetting downward contribution came from recreation and culture”.

Figure 2:

Beyond the headline figure other measures also picked up but generally by not as much. Core CPI (excluding volatile energy, food, alcohol and tobacco prices) inflation increased to 3.3% over the year to October 2024, up from 3.2% in September. The CPI goods annual rate rose from negative 1.4% to negative 0.3%. While the CPI services annual rate increased from 4.9% in September to 5.0% in October.

Looking ahead the energy regulator Ofgem announced this month that the energy price cap will rise in January. This would be the second consecutive rise in the cap. This rise means that someone paying by direct debit and using the typical amount of gas and electricity will pay £1,738, or £21 a year more. Bills are currently up to 50% higher than they were pre the pandemic.

UK GDP only marginally grows in the third quarter

The ONS also published data for economic growth in the third quarter of 2024 this month. This showed a marked slowdown in growth, with UK GDP only increasing by 0.1% in Q3 2024; this compares to growth of 0.5% in Q2 2024 (Figure 3).

Figure 3:

The ONS estimates that output in the services sector increased by 0.1% on the quarter, with output in construction growing by 0.8% but output in the production sector fell by 0.2%. Compared to a year ago real GDP is estimated to have increased by 1.0% in Q3 2024. However, real GDP per head is estimated to have declined by 0.1% in Q3 2024, and is flat, compared with the same quarter in 2023.

US president elect proposes the imposition of tariffs

The President elect of the US, Donald Trump, has proposed during his election campaign the imposition of a number of tariffs on imports into the US. These could take the form of tariffs of up to 20% on goods from other countries with tariffs of 60% on all imports from China. In 2023 the US imported around $3,100bn of goods, worth around 11% of US GDP. Looking at the possible impact of these tariffs on US consumers the Peterson Institute for International Economics has estimated that it could lower the income of Americans from between about 4% for the poorest fifth to about 2% for the wealthiest fifth. Looking at the possible impact on the UK economy the National Institute of Economic and Social Research (NIESR) has estimated that the imposition of 10% tariffs could cut UK growth by 0.7 percentage points.

Elsewhere in the US the Federal Reserve has again cut interest rates. The Fed reduced its benchmark rate in November by a quarter point to a rate of between 4.5%-4.75%. This was the Feds second consecutive cut in the rate. Commenting on this change the Feds Chair, Jerome Powell, said “this further recalibration of our policy stance will help maintain the strength of the economy and the labour market and will continue to enable further progress on inflation as we move towards a more neutral stance”.

London’s payrolled employment numbers fall

London’s payrolled employment numbers continued to fall in October, according to the latest HMRC real-time information data, and are now lower than a year ago. Losses of resident payrolled jobs in Inner London were slightly higher than gains in Outer London in the latest data.

The unemployment rate in London in the latest ONS Labour Force Survey data was the highest across regions and countries of the UK. The unemployment-related claimant count continued to rise gradually. At the same time, the economic inactivity rate carried on decreasing, and is much lower than the UK average, while the employment rate is higher than the UK average. The recent volatility of the figures invites caution. Overall, the sustained rise in claimant count and broad stagnation in resident payrolled employment in 2024 suggest a cooling-down of the London labour market. Further, analysis on the latest information on London’s labour market can be found on the London Datatstore.

Elsewhere, the latest Hospitality Market Monitor from CGA by NIQ and AlixPartners has found that there had been “notable growth in outlet numbers in Scotland and London” in the last 12 months. The monitor also found that year-on-year growth in site numbers was 0.4% in London, “though it has been much faster in the centre of the capital at 1.8%”.

GLA Economics will continue to monitor all these and other aspects of London’s economy over the coming months in our analysis and publications, which can be found on our publications page and on the London Datastore.

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