Bank Governor says rate cuts ‘in play’ in upbeat take on inflation
Hopes that interest rates could be cut sooner rather than later are rising after the Governor of the Bank of England hinted at the first fall in borrowing costs since 2020. Economists suggested yesterday that a cut in the Bank’s base rate was expected after Andrew Bailey used an interview to say that a rate cut was now “in play” after the Bank’s Monetary Policy Committee (MPC) voted this week to keep interest rates unchanged for another month. The shift in tone from Mr Bailey prompted some industry figures to claim that a cut could come as early as May, although the working expectation is that the first fall will be in June. In an interview with the Financial Times, Mr Bailey suggested that rate cuts would now be on the table at the next MPC meeting after inflation fell to 3.4 per cent in February. While the Governor refused to say when and by how much interest rates could be cut, the fact that he is talking about it as a possibility has been seized upon by financial analysts.
“The fact that we have a curve that has cuts in it for the year as a whole is not unreasonable to me,” Mr Bailey told the Financial Times.
Asked whether future MPC meetings would hold live discussions on policy moves, he added: “All our meetings are in play. We take a fresh decision every time.”
The Governor has come under sustained criticism from Tory MPs, who are demanding that he and his committee act more swiftly to bring down the cost of borrowing. Deutsche Bank is now viewing it as a significant shift in stance, stating yesterday: “We see a May rate cut as 50/50. In our view, the MPC has indeed opened the door for rate cut in May. The debate around rate cuts, we think, is firming.”
Paul Dales, the chief UK economist at Capital Economics echoed the assessment, saying: “I’m taking it as a sign that the Bank is getting closer to rate cuts. It appears that Bailey is gaining enough confidence that all measures of inflation are moving in the right direction and that would be enough to cut rates.” But there were doubts that the more optimistic noises from the Bank would result in a cut to rates as soon as May, with June still being seen as the most viable outcome. Willem Buiter, a former external member of the MPC, said: “There is no doubt that the latest inflation figures were a pleasant surprise, with headline consumer price index inflation down to 3.4 per cent. “Does this mean that the Bank rate will be cut at the May MPC meeting? Unlikely, I would say, unless there are further comparable surprises before 9 May. “May would be a surprise, and most likely a mistake.”
Edward Jones, an economist at Bangor University, said: “There is no longer any discussion on increasing rates and I suspect that we will see more MPC members voting for cuts soon.
“However, I’m unsure that we will see a cut in May. The BoE will want to be certain the battle against inflation has been won.”
Other central banks, including the US Federal Reserve and European Central Bank, are mulling summer interest rate cuts on the table as officials become increasingly optimistic that they have vanquished the worst inflationary outbreak for a generation.