Bank of England: Interest rate cuts are ‘in play’ as inflation falls, Bailey says
Could the Bank of England cut rates interest rates sooner than expected?
Andrew Bailey, the governor of the Bank of England, said that interest rate cuts were “in play” in a sign that cuts might come sooner than markets currently expect.
The Bank voted to leave interest rates on hold yesterday but the decision was interpreted as slightly more dovish than expected.
In a statement after the decision, Bailey said “things were moving in the right direction” suggesting rate cuts were on the way.
In an interview with the Financial Times, he clarified that inflationary pressures were less severe than feared. “It’s like the Sherlock Holmes dog that doesn’t bark. If the second-round effects don’t come through, that’s good because monetary policy has done it’s job,” he said.
“The global shocks are unwinding and we are not seeing a lot of sticky persistence coming through at the moment. That is the judgement we have to keep coming back to,” he continued.
Figures out earlier this week showed that inflation fell to 3.4 per cent in February, slightly lower than expected. Wage pressures have also eased slightly more quickly than predicted.
Eight members of the Monetary Policy Committee (MPC) voted to leave rates on hold after the two hawkish outliers dropped their call for further rate hikes.
Minutes from the Bank of England meeting showed that there was disagreement among those members about when it might be appropriate to cut rates.
“Some people are more comfortable with the evidence they are beginning to see, and others feels, no, we are further off from being confidence,” he said.
Bailey himself seemed more comfortable. “What we are seeing is encouraging to me,” he added.
Markets currently think the Bank will start cutting rates in the summer. After yesterday’s decision, June is seen as a slightly more likely start date than August but Bailey said “all our meetings are in play. We take a fresh decision every time.”
