Bank of England won’t cut interest rates soon enough to help Sunak and Hunt

Slowly, painfully slowly, the heat is coming out of the labour market. 

But will it cool off enough in time for the string of pre-election interest rate cuts that Rishi Sunak and Jeremy Hunt are counting on to shore up what is left of the Tory vote? Probably not. 

Working on the assumption of an October polling day (Tory strategists are unlikely to want to be boxed into December of January, and November clashes awkwardly with the US Presidential election) that leaves five Monetary Policy Committee meetings until we all troop to the ballot boxes. 

March is way too early, May is in the mix, but more likely it will be June before rate setters make their move, after almost a year of the cost of borrowing stuck at 5.25%.

There are then further MPC meetings in August and September. Making the generous assumption of a quarter point cut at each one, that would trim rates to 4.5% by polling day. Enough to move the dial? 

It seems unlikely. Most voters have already made up their minds it seems and only the roughly 10% of home owners on variable rate mortgages will get an immediate benefit. The fixed rate market has already priced in the summer wave of cuts so there will be little to gain there.

Indeed borrowers coming off five year deals taken out at the time of super low 1% rates will continue to face substantial increase in the costs. 

The biggest short term boost for the Government will be purely presentational: “We cracked inflation and now everyone can enjoy the interest rate jam.” 

It will all almost certainly be too little to late and it will be Rachel Reeves who collects the dividend, not Jeremy Hunt. Tough, but that’s showbiz.