Interest rate hesitancy gives little hope for optimism

News that interest rates are to fall by 0.25 per cent will be welcomed by mortgage holders who have been feeling the pinch ever since Liz Truss and Kwasi Karteng inflicted their mini-budget on the public. 

It will, of course, be bad news for savers, but given that the Chancellor of the Exchequer is actively trying to steer people away from saving and towards stock-market investment, she might not view that as such a bad thing. With reports of soaring borrowing and sluggish growth, Rachel Reeves will take any good news she can get.

But while Miss Reeves will doubtless hope that another modest cut in the borrowing rate marks a tentative step towards recovery, the verdict of the monetary policy committee was hardly the ringing endorsement she would have wanted. Not only was the cut smaller than many had been forecasting, the decision also went to an unprecedented second round of voting amid concerns about the threat that inflation could be on the rise again.

For now, the cut in rates will hopefully bring a little respite for the beleaguered Chancellor. Maybe it will herald a gradual return of confidence to the financial markets, and convince business that it is safe to invest once more. And given the level of government debt, any cut in interest rates is to be welcomed. 

However, any such hope will be short-lived if the committee's fears about inflation are borne out, and interest rates have to go back up later in the year. And if the state of the public finances are as bad as reports this week suggest, a paltry cut in interest rates will be little consolation if the Chancellor has to pile on more taxes in the autumn.

Thin gruel is better than no gruel, and we hope the cut in interest rates marks a tentative step on the road to recovery. But the light at the end of the tunnel still looks decidedly dim.