UK inflation cools but relief remains elusive as Reeves extends tax freeze
Inflation slows to 3.2%, but real incomes are squeezed as the government extends the freeze on tax thresholds to 2031; markets eye a 3.75% Bank Rate cut amid a mixed data backdrop.
UK inflation cooled to 3.2% in the latest data, but many households still do not feel better off as prices continue to rise and unemployment edges higher. Analysts say the improvement is not a signal that near-term rate reductions are guaranteed, and the Bank of England remains cautious about the inflation path. Markets expect a quarter-point cut in Bank Rate to 3.75% at today’s policy announcement, though officials have warned that a return to ultra-low rates is unlikely while inflation remains above target.
Chancellor Rachel Reeves extended the freeze on tax allowances and thresholds by three years, to 2031. Officials say the move will restrain the growth of the personal tax take, potentially diverting roughly £8 billion from taxpayers’ pockets into Treasury coffers if the freeze continues through the period.
Retailers have begun heavy discounting in the run-up to Christmas. Lidl’s chief executive noted that shoppers are starting festive purchases earlier to spread costs, but food inflation remains elevated at about 4.2%. With suppliers’ costs rising, retailers face pressure on margins, while a British Retail Consortium survey shows consumers remain wary about the economy and plan to curb spending. Savers’ real value also remains under pressure as funds shift toward cash and other lower-risk assets.
Bank watchers say the inflation path remains uneven, complicating the BoE’s policy path. If inflation continues to slow but wages hold firm, the central bank may still keep policy restrictive, avoiding a quick glide back to 3% or lower. The government’s stance, meanwhile, is to balance responsible spending with support for households facing higher living costs.
Cycle Pharmaceuticals, a Cambridge-based biopharma company, said it had completed a deal to rescue New York-based Applied Therapeutics after a prior acquisition of Banner Life Sciences. CEO James Harrison told BBC Radio 4’s Today that Cycle’s success shows UK biotech firms can prosper without relocating to the United States. Harrison, a Cambridge graduate, runs Cycle as a privately owned company and has suggested that if it goes public, it would aim to list in the UK.
City observers report unverified chatter that wealthy UK residents who fled to Milan to avoid wealth taxes have received unsolicited offers to buy large insurance policies from Southern Italian business interests. The tale appears to be an urban myth rather than a substantiated policy proposal.
Taken together, the developments underscore a paradox for the Reeves government: inflation is easing, but real incomes are still under pressure and voters are not feeling relief. As policy makers weigh the balance of tax policy, fiscal discipline, and growth-friendly regulation, the path ahead remains uncertain for households and markets alike.
