‘Stagflation’ fears as Bank of England cuts growth forecast and warns of price rises
Rachel Reeves’s plans for growth suffered a double blow after the Bank of England halved its forecast for the year and warned households would face mounting pressure from rising prices,In a downbeat assessment as it cut interest rates for a third time in six months, Threadneedle Street warned people would face a fresh squeeze on living standards from rising inflation even as the economy stalled,Cutting rates by a quarter of a point to 4,5%, the central bank’s heightened concern was underscored by a steep downgrade in its 2025 growth forecasts,It now expects the economy to grow by just 0.
75% this year, compared with a previous forecast of 1,5% made in November, in a fresh blow for Reeves as she battles to revive confidence,A week after the chancellor gave a major speech to restate the government’s commitment to growth, the Bank said it was cutting its forecasts to reflect fragile business and consumer sentiment and near stagnant activity after the October budget,Business leaders have blamed the sharp fall in confidence on Reeves’s decision to increase employer national insurance contributions by £25bn from April, while concerns are also rising over the global outlook as Donald Trump launches a tariff war on the US’s allies and enemies alike,Some analysts suggested the Bank’s forecasts showed the UK sliding towards “stagflation” – a toxic combination of weak growth and high inflation which is hard for policymakers to manage.
Jonathan Haskel, a former Bank rate-setter, said stagflation was the right word to describe the “difficult position” Britain faced, telling the BBC: “I’m afraid it’s not very pretty, OK.”Susannah Streeter, the head of money and markets at Hargreaves Landsdown, said: “The risks of stagflation are stark.Inflation remains above the Bank’s 2% target and price pressures are piling up, but the economy is stagnating, and business confidence has taken a knock.”Keir Starmer said the reduction in borrowing costs, which should help to bring down mortgage rates, would put more money in people’s pockets.But pressed on the growth outlook, the prime minister said: “Look we’ve got more to do, we were never going to turn this around in six or seven months, so that just spurs us on.
”The Bank’s monetary policy committee (MPC) voted by a majority of seven to two for an immediate cut in borrowing costs from 4.75% to 4.5%.The decision led City traders to bet that Britain’s sluggish economic prospects would force the Bank into a deeper round of rate cuts later this year.Two of the MPC’s nine members backed a more drastic half-point cut in the face of the deteriorating growth outlook.
Andrew Bailey, the Bank’s governor, said the weakness in the economy meant the central bank would take a “gradual and careful approach to reducing rates further”, as it prepared to prioritise protecting the economy despite the short-term rise in inflationary pressures.“There will be a bump in the road [from inflation] but we don’t think that bump is going to have a lasting effect,” he said.Paul Nowak, the general secretary of the TUC, said further rate cuts were required to support households and businesses.“This rate cut is badly needed to help lift the economy out of stagnation.The Bank must now keep moving with further cuts,” he said.
The Bank expects inflation to rise from 2.5% now to 3.7% by the summer, well above its 2% target, as household energy prices rise, as well as water bills and bus fares.The Bank’s gloomy assessment is likely to be echoed by a similar downgrade from the independent Office for Budget Responsibility (OBR) when it publishes updated forecasts on 26 March.Last month Reeves came under scrutiny amid a rise in government borrowing costs, fuelled by higher-for-longer rate expectations in Britain and the US.
This led to warnings that she could be forced to increase taxes or cut spending to avoid breaking her fiscal rules,Sign up to Business TodayGet set for the working day – we'll point you to all the business news and analysis you need every morningafter newsletter promotionBut some economists suggested on Thursday that the economy was now so weak that it may drive down borrowing costs for the government, as investors bet on rate cuts,“The Bank’s downbeat assessment may contain a silver lining,” said James Smith, the research director at the Resolution Foundation thinktank,“The MPC may quicken the pace of interest rates cuts this year, reducing debt-servicing costs to give the chancellor some much-needed headroom,”Reeves has previously signalled that potentially downbeat OBR forecasts putting her fiscal rules in danger would be met with spending cuts to balance the books.
However, union leaders urged the government to prioritise growth-enhancing projects to reboot the economy.The Unite general secretary, Sharon Graham, said: “No investment equals no growth.So what are we waiting for? There are plenty of projects crying out for public investment that will drive growth and create good jobs.”Reeves’s plan for economic growth is focused on clearing the way for private sector investment in infrastructure, including a third runway at Heathrow.The Bank welcomed the chancellor’s policies, but said it had not upgraded its forecasts accordingly, as such changes take years to bear fruit.
“Addressing those questions is critical, so we very strongly agree with the chancellor on this point,” Bailey said.He also suggested Labour’s commitment to changes and “showing real signs they are going to happen” could help to reboot animal spirits among business, in a benefit for the economy in the shorter term.The Bank said it was monitoring Donald Trump’s on-off tariff policies closely, though it had not included their impact in the current forecast.Bailey warned that Britain would not be immune to a global trade war.“Greater global protectionism would be likely to have a negative impact on world economic activity in the medium term, and lead to increased trade fragmentation,” he said.
The shadow chancellor, Mel Stride, said of the reduction in interest rates: “This will be welcome news for many families and businesses who have been hit hard by Labour’s mismanagement,”
UK demands ability to access Apple users’ encrypted data
The UK government has demanded that Apple creates a backdoor in its encrypted cloud service, in a confrontation that challenges the US tech firm’s avowed stance on protecting user privacy.The Washington Post reported on Friday that the Home Office had issued a “technical capability notice” under the Investigatory Powers Act (IPA), which requires companies to assist law enforcement in providing evidence.The demand, issued last month, relates to Apple’s Advanced Data Protection (ADP) service, which heavily encrypts personal data uploaded and stored remotely in Apple’s cloud servers, according to the Post, which said this was a “blanket” request that applied to any Apple user worldwide. The ADP service uses end-to-end encryption, a form of security that means only the account holder can decrypt the files and no one else can – including Apple.Apple declined to comment
Call to make tech firms report data centre energy use as AI booms
Tech companies should be required by law to report the energy and water consumption for their data centres, as the boom in AI risks causing irreparable damage to the environment, experts have said.AI is growing at a rate unparalleled by other energy systems, bringing heightened environmental risk, a report by the National Engineering Policy Centre (NEPC) said.The report calls for the UK government to make tech companies submit mandatory reports on their energy and water consumption and carbon emissions in order to set conditions in which data centres are designed to use fewer vital resources.“In recent years advances in AI systems and services have largely been driven by a race for size and scale, demanding increasing amounts of computational power,” said Prof Tom Rodden, the pro-vice-chancellor of research and knowledge exchange at the University of Nottingham, who was a member of the NEPC working group that delivered the study.“As a result, AI systems and services are growing at a rate unparalleled by other high-energy systems – and generally without much regard for resource efficiency
Google edits Super Bowl ad for AI that featured false information
Google has edited an advert for its leading artificial intelligence (AI) tool, Gemini, before its broadcast during the Super Bowl after it was found to contain false information about gouda cheese.The local commercial, which advertises how people can use “AI for every business”, showcases Gemini’s abilities by depicting the tool helping a cheesemonger in Wisconsin to write a product description, including the erroneous line that gouda accounts for “50% to 60% of global cheese consumption”.However, a blogger posted on X that the stat was an “AI hallucination” that is “unequivocally false”, as more reliable data suggests the Dutch cheese is probably less popular than cheddar or mozzarella.The blogger Nate Hake added: “I found the above AI slop example in 20 minutes, and on the first Super Bowl ad I tried factchecking.”Replying to him, the Google executive Jerry Dischler said this was not a “hallucination” – where AI systems invent untrue information – but rather a reflection of the fact the untrue information is contained in the websites that Gemini scrapes
Owner of spyware used in alleged WhatsApp breach ends contract with Italy
Paragon Solutions, whose military-grade hacking software was allegedly used to target 90 people, including journalists and members of civil society, in two dozen countries, has terminated its client relationship with Italy, according a person familiar with the matter.Paragon’s decision to end the Italy contract followed revelations that an Italian investigative journalist and two activists who were critical of Italy’s dealings with Libya were among the people who had allegedly been targeted with the spyware. The work of all three individuals has been critical of the rightwing government of Italy’s prime minister, Giorgia Meloni.A person familiar with the matter said Italy had breached the terms of Paragon’s contract with the government, which does not allow for journalists or members of civil society to be targeted with the spyware.Like Pegasus, the hacking software made by the rival NSO Group, Paragon’s hacking spyware, called Graphite, can infect a mobile phone without a user’s knowledge
UK app drivers: will you be logging off on Valentine’s Day?
Many UK drivers for platforms including Uber, Bolt and Addison Lee are planning to log off and refuse work on Valentine’s Day, as part of a push to demand better pay and conditions.The UK supreme court ruled in 2021 that Uber drives are entitled to worker status – meaning they can access rights such as holiday pay – but unions say conditions have worsened since then, saying companies responded by cutting rates.The Independent Workers Union of Great Britain (IWGB) is planning a protest outside London’s City Hall on 14 February, while private hire drivers log off.We want to hear from you. Are you a private hire driver who will be affected by the developments? What do you think of your working conditions? What will be your reasons for either logging off or continuing to work on 14 February?You can tell us your story using the form below
Google scraps diversity hiring goals and cites Trump’s DEI orders
Alphabet’s Google is scrapping its goal to hire more employees from historically underrepresented groups and is reviewing some of its diversity, equity and inclusion (DEI) initiatives.With this, Google joins a slew of US businesses, particularly in Silicon Valley, that have been scaling back their diversity initiatives, years after pushing for more inclusive policies after protests against the police killings of George Floyd and other Black Americans in 2020. The company did not immediately respond to a request for comment. The Wall Street Journal first reported the news.The company issued a statement after the news broke: “We’re committed to creating a workplace where all our employees can succeed and have equal opportunities, and over the last year we’ve been reviewing our programs designed to help us get there
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