Teaching activity

In the News Teaching Activity – Will the Bank of England cut base rates this summer? (May 2024)

Elizabeth Veal

16th May 2024

The Bank of England kept the base rate on hold at 5.25% at its meeting on 9th May, but indicated the next move may be downwards. Hot on the heels of the Bank’s Governor saying the UK was not experiencing a ‘strong recovery,’ economic growth data turned out to be stronger than expected at 0.6% in the first quarter of 2024.

Bank of England's Andrew Bailey suggests a potential interest rate cut hinges on further evidence of slowing price rises, despite optimism about economic direction. Inflation is nearing its 2% +/- 1% point target level and this may prompt a rate reduction as early as June, yet Bailey cautions against premature assumptions. With two committee members advocating for cuts and a positive economic outlook, the decision's timing remains uncertain. Economic policies tend to take centre stage as a general election approaches; the Bank believes cautious optimism marks the UK's economic trajectory. However, the government is much more upbeat - last year’s minor recession has ended with strong first quarterly economic growth and the ONS data also indicates an increase in GDP per capita, a measure economists often use as a proxy for the standard of living. However, GDP per capita is still below its pre-pandemic level.

Bank of England 'optimistic' as it edges closer to summer rate cut - BBC News

Recession is over with a bang - but will voters forgive the government for years of economic disappointment? | Business News | Sky News

  1. Explain how the Bank of England makes its decision about the Bank base rate.
  2. Is real GDP per capita a good proxy for the standard of living?
  3. Discuss the economic consequences cutting interest rates.

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Elizabeth Veal

Liz has taught Economics for over 25 years, including several years as Head of Economics at leading schools.

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