Source – news.sky
In a significant announcement, Bank of England Governor Andrew Bailey has indicated that markets could anticipate more than one interest rate cut this year. Speaking to the Financial Times, Bailey suggested that future meetings of the Bank’s Monetary Policy Committee (MPC) could see rate cuts being considered. He emphasized that signs of tighter policy had successfully mitigated the risk of a wage-price spiral, stating, “If the second-round effects don’t come through, that’s good because monetary policy has done its job.”
Governor Andrew Bailey expressed growing confidence in inflation heading towards the target, highlighting positive indicators and the unwinding of global shocks. He reiterated the importance of continually reassessing the situation but remained optimistic about the decreasing persistence of inflationary pressures.
Global Central Banks Pave the Way for Summer Interest Rate Reductions
Major central banks, including the Federal Reserve and the European Central Bank, have opened discussions about potential interest rate cuts this summer. Officials from these banks are increasingly optimistic about having subdued what has been termed the worst inflationary outbreak in a generation. Despite this, the MPC opted to maintain UK rates at 5.25 per cent following the recent meeting, with inflation figures showing a decline to 3.4 per cent, its lowest in over two years.
Governor Andrew Bailey struck a positive note regarding the UK economy, highlighting the minor technical recession in the second half of the previous year and indicating signs of an imminent upturn. He noted the unique situation of effectively disinflating at full employment, emphasizing the delicate balance the Bank must maintain in setting policy amid tight labor market conditions.
Governor Andrew Bailey’s Optimism Aligns with Government’s Economic Strategy
Bailey’s optimistic remarks align closely with Prime Minister Rishi Sunak’s economic strategy, who is banking on an improving economy, falling inflation, and potential interest rate cuts ahead of the anticipated autumn election. Sunak has voiced confidence in a forthcoming economic rebound, urging Conservative MPs to remain steadfast in supporting his economic plan. While headline inflation has significantly declined, the Bank remains vigilant, particularly regarding wages and service sector prices, which still exhibit notable growth.
Governor Andrew Bailey acknowledged diverging views within the MPC concerning the reassurance provided by these indicators, emphasizing that the Bank’s task regarding inflation is far from complete. Bailey refrained from specifying the timing or extent of interest rate cuts this year but acknowledged the growing market anticipation for a reduction, particularly after the recent MPC meeting.
