What's happened
Business confidence in the UK fell to its lowest level on record in September, driven by rising labour and energy costs. Bank of England policymakers debate interest rate policies amid concerns over persistent inflation, with some suggesting further rate cuts are possible despite inflation risks.
What's behind the headline?
The UK economy faces a complex balancing act. Despite some policymakers advocating for further rate cuts, inflation persistence—driven by food prices and global shocks—suggests that the Bank of England will likely hold rates steady or increase them. The divergence among policymakers highlights the uncertainty: some see inflation as a temporary 'hump,' while others warn it could become entrenched. Business confidence's record low signals deepening economic strain, with rising costs dampening investment and hiring. The debate over monetary policy reflects broader concerns about inflation's stickiness and the risk of stagflation if growth slows too much. The government’s fiscal credibility, as emphasized by the IoD, remains crucial for future growth, but current conditions suggest a cautious approach is necessary to avoid further economic deterioration.
What the papers say
The Guardian reports that business confidence plummeted to a record low in September, citing rising costs and inflation fears. The Independent highlights that 83% of business leaders link the downturn to higher labour costs, with the IoD warning of worsening conditions. Both articles note the divergence among Bank of England policymakers: some see inflation as temporary, while others warn of persistent inflation, especially driven by external shocks and global commodity prices. Bloomberg emphasizes that the Bank's recent pause on rate hikes reflects concerns over inflation, with some members suggesting further cuts could be possible if inflation eases. Meanwhile, Business Insider UK discusses the risk of US-style stagflation, warning that aggressive rate cuts could backfire if demand re-accelerates unexpectedly. Overall, the sources collectively underscore ongoing uncertainty in UK monetary policy amid rising costs and inflation risks.
How we got here
The decline in UK business confidence stems from rising costs, particularly labour and energy, which have been exacerbated by government policies such as increased minimum wages and NICs. The Bank of England has maintained interest rates at 4%, amid fears inflation may remain high into 2026, influenced by external shocks and global commodity prices.
Go deeper
Common question
-
What is the Bank of England's current stance on interest rates?
The Bank of England is currently holding interest rates at 4%, but there's ongoing debate among officials about whether to cut or keep rates steady. Some see inflation as temporary, while others warn of risks from supply shocks and global uncertainties. This debate influences UK economic policy and affects everything from borrowing costs to inflation control. Curious about what this means for the economy? Below, we answer key questions about the UK's monetary outlook and the factors shaping it.
More on these topics