Phil Aldrick

Britain is starting to rein in inflation at a quicker pace than the US, underscoring a divergence between the two economies that may allow the Bank of England to move sooner on cutting interest rates than the US Federal Reserve.

Bank of England policymaker Catherine Mann said the fragmenting global economy will leave countries more exposed to inflation shocks in future, posing a test for central banks.

Bank of England policymaker Megan Greene said the UK faces difficult trade-offs over whether to cut interest rates because underlying inflation remains high and growth is weak.

A consumption-driven recovery in the UK could set off a renewed bout of inflation, but more interest rate cuts are likely as prices are “moving in the right direction,” Bank of England policymaker Megan Greene said.

With UK public services failing due to years of under-investment and the tax burden already at a post-World War II high, Chancellor Rachel Reeves has warned she faces “tough decisions” to balance the nation’s finances.

An emerging plan to loosen the UK’s rigid fiscal rules could help Prime Minister Keir Starmer resurrect his ambitious climate investment plans and answer critics who say his government lacks a plan to generate growth.

Chancellor of the Exchequer Rachel Reeves will have to increase borrowing by about £25 billion ($32.5 billion) in the budget to bridge the UK’s investment gap, a fiscal expansion that could slow Bank of England interest rate cuts, according to analysis by Bloomberg Economics.

The Bank of England cut borrowing costs for the second time this year, but stopped short of signaling faster easing, warning that last week’s budget could drive up inflation by as much as half a percentage point.

The increase in UK borrowing costs since last week’s budget has wiped out all of Chancellor of the Exchequer Rachel Reeves’ headroom against her main fiscal rule, raising the prospect of further tax rises or spending cuts unless the debt picture changes.

The UK’s fiscal watchdog has accused Treasury civil servants of breaking the law by withholding information before the March budget, raising the stakes in a blame game over who was responsible for hiding a multi-billion pound shortfall.