Stagflation fears are rippling through the City today after the Bank of England slashed its growth forecasts yesterday, and lifted its inflation forecast.
The Bank halved its forecast for GDP growth this year to 0.75%, down from the 1.5% expected three months ago.
In another blow to the government, the Bank predicted inflation would peak at 3.7% later this year, almost twice its 2% target, as rising energy prices push up the cost of living again.
Despite this grim outlook, the Bank cut interest rates, arguing that a “continued, gradual easing of underlying inflationary pressures” was under way in the UK economy.
Weaker growth and rising inflation is a toxic combination for the chancellor, Rachel Reeves; it could be kryptonite to her hopes of sticking to the fiscal rules laid out in last year's budget.
Economic growth may be slowing but UK house prices continue to rise – according to the lender Halifax.
It has reported that house prices increased by 0.7% in January, after a dip of 0.2% in December, lifting the average price to a new record high of £299,138 (on Halifax’s index).
On an annual basis, house prices were 3% higher – down from 3.4% in November.
Amanda Bryden, the head of mortgages at Halifax, said the UK housing market started the year “on a positive note”.
She said some buyers may have been keen to avoid increases in stamp duty coming in the spring in England and Northern Ireland.
"Affordability is still a challenge for many would-be buyers but the market’s resilience is noteworthy. There is strong demand for new mortgages and growth in lending.
"With a stamp duty increase looming, some of this demand may have come from first-time buyers eager to complete transactions before the end of March."
Bryden predicts that UK mortgage rates are likely to hover between 4% and 5% this year, adding: “Despite geopolitical uncertainties, and waning consumer confidence, other key indicators look fairly positive for the housing market. The Bank of England has made its first base rate cut of the year, and there are probably more to come.
"Household earnings are expected to continue outpacing inflation – albeit that gap may narrow – easing some of the financial pressure still being felt from the cost of living squeeze."
The agenda • 1.30pm GMT: US non-farm payroll for January
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Grim news for Rachel Reeves is good news for the FTSE 100 
