Sunak is on track to hit his inflation target – but that’s where the good news ends

Today, they cast their votes. 6-3. Enough for a majority decision, but hardly convincing.

A third of the Bank of England’s Monetary Policy Committee was opposed to putting interest rates up by 0.25 per cent to 5.25 per cent. One believed they should remain at 5 per cent. Two said raise them higher still, to 5.5 per cent.

The fact they are so split gives some indication as to the truth of the situation, which is that they don’t really know. They think inflation is falling, the signs are encouraging – but there again, prices in the UK are continuing to rise faster than in other developed economies like the US, Japan and EU. There, they’re hopeful interest rates are peaking; in the UK we’re not there yet, and we cannot be anything like so optimistic.

Tories were quick to pounce on the Bank’s forecast that inflation will fall below 5 per cent in the fourth quarter of this year, thus meeting Rishi Sunak’s pledge to “halve inflation” to 5.4 per cent by the end of the year. Politics being what it is, they are hailing this as proof that he’s a prime minister who is true to his word, can be trusted with running the economy and is worthy of victory in the forthcoming general election.

As ever, they are taking only the good bits; those that suit their agenda. So the chancellor Jeremy Hunt said: “If we stick to the plan, the Bank forecasts inflation will be below 3 per cent in a year’s time without the economy falling into a recession.”

That’s true, but the MPC also said it would take until mid-2025 for inflation to fall to the Bank’s 2 per cent target. It was seeing evidence “that some of the risks of greater persistence… had crystallised”.

That could mean rates increasing again. The Bank has said that before. This time, though, it felt the need to add it “would ensure that the bank rate was sufficiently restrictive for sufficiently long to return inflation to the 2 per cent target”.

That’s quite a phrase, “sufficiently restrictive for sufficiently long”. What it is saying is do not expect a quick fix, rates are at a 15-year high but don’t suppose they are coming down any time soon, they are staying there for as long as they need to – and that could be quite a while.

While the economy had shown “surprising resilience”, higher borrowing costs are starting to make their presence felt. There are indications of the job market slowing and unemployment climbing.

Where the UK is heading, despite the boosterism of Hunt, is towards a grim at worst, flat at best, 2024. Consumer spending is likely to contract, business investment will fare similarly and the housing market likewise.

So, while the prime minister and his supporters can seek satisfaction that inflation has been reduced as he promised, it’s coming at a cost. And, given the weakness of the UK economy, that pain is going to be felt for longer than elsewhere. We might avoid a recession, but we will be bumbling along the bottom, and for a sustained period, the Bank is signposting.

Meanwhile, mortgage holders should brace themselves for the long haul. Prices may be brought under control, but the amount they must find to stay in their homes is going to remain high. For Tories who like to see themselves as representing hard-working, home-owning families, that will take some explaining.

Predictably, that’s what Labour is focusing upon, denouncing a “Tory mortgage bombshell”. They of course will not credit Sunak with getting to grips with inflation.

So, it’s not clear cut. There’s good news and bad. It’s not black and white but grey and blurry – rather like the MPC.