'We are finally starting to win this battle': Chancellor says the 'plan is working' as interest rate stays at 5.25%

21 September 2023, 16:52

Listen to Andrew Marr's full interview with the Chancellor tonight on Global Player from 6pm

Jeremy Hunt says even after interest rates being held at 5.25% tax cuts are "impossible"

The Chancellor has signalled that the battle against rising inflation is 'finally' starting to be won after the Bank of England left its interest rate unchanged at 5.25%.

Speaking to Andrew Marr on LBC, Chancellor Jeremy Hunt said today's interest rates decision was "absolutely" good news for families.

Asked by Andrew if we had "reached the top of the hill" for the cost of living, Mr Hunt said: "It would be wonderful if that was the case.

"It is very clear that inflation peaked at over 11%, now it’s 6.7%. The plan is working, we need to stick to that plan, but even 6.7% is too high. That is real pain on family budgets.

Listen to the full interview on Global Player tonight from 6pm

He said today's figures show the Bank of England thinks we ‘may have’ hit the peak.

"The fight against inflation never happens in a straight line," he added. "We are finally starting to win this battle."

Paul Dales, chief UK economist at Capital Economics, said the decision indicates that the Bank of England has finished raising rates.

He said: “The surprise decision by the Bank of England to leave interest rates unchanged at 5.25pc today probably means that rates are already at their peak.

“We think rates will stay at this peak of 5.25pc for longer than the Fed, the ECB and investors expect, but that when rates are cut in late 2024 they will be reduced further and faster than widely expected.”

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “It’s unlikely that CPI, GDP and labour market data will be pressuring the MPC to hike more in November than today. 5.25pc looks like the peak to me.”

The Bank decided against hiking inflation for a 15th straight increase as inflation slowed down to 6.7% in a huge boost to households.

Some observers expected it to rise to 5.5% today, the highest rate since 2008. Rates have been continuously hiked since November 2021.

But the Bank has now predicted weaker economic growth than it previously thought.

"We are starting to see the tide turn against high inflation, but we will continue to do what we can to help households struggling with mortgage payments," the Chancellor said in a statement earlier.

Read more: UK inflation falls to 6.7% despite fuel price hikes

"Now is the time to see the job through. We are on track to halve inflation this year and sticking to our plan is the only way to bring interest and mortgage rates down."

Protesters dressed in masks of Rishi Sunak and bank logos handed money sacks to each other in a demonstration outside the Bank earlier, with one holding a placard calling for taxes on banks.

Bank of England governor Andrew Bailey said: "Inflation has fallen a lot in recent months and we think it will continue to do so. That's welcome news.

"But there is no room for complacency. We need to be sure inflation returns to normal and we will continue to take the decisions necessary to do just that."

In worse news, the Bank said the economy was likely being hit by increased borrowing costs so GDP would rise by just 0.1%, having forecast a 0.4% rise last month.

Read more: Hope for homeowners as interest rates 'near peak', Bank of England governor tells MPs

Bank of England also said the UK economy is now expected to grow at a weaker rate than previously expected amid "subdued" activity linked to the recent rise in borrowing costs.

It comes as living costs have spiralled since the end of 2021 with nearly seven in 10 (69%) people are concerned about their personal finances and ability to cover the essentials, according to a survey.

This is an increase from 57% who said this in July and 62% who felt this way in August, according to the research carried out for Nationwide Building Society.

A third (32%) of those in the latest survey said they are left with £100 or less in their account at the end of each month, with one in 11 (9%) saying they have no money left.  

Britain's shops meanwhile, are gripped by a shoplifting epidemic, with thefts rife as people have less money to pay for essentials.

Even basics like butter and baby formula are being put into security cases in supermarkets.