Bailey signals imminent end to interest rate rises as inflation cools

Governor pushes back against City bets that further aggressive action is around the corner

ANDREW BAILEY has hinted that the Bank of England could soon stop raising interest rates, pushing back against City bets that further aggressive action is coming.

The Bank Governor said more interest rate rises may not be needed to control inflation, comments that forced investors to rethink their bets on further sharp increases this year.

Mr Bailey said the economy had evolved “much as we expected it to” since the Monetary Policy Committee (MPC)’S last meeting in February. He cautioned against suggestions that policymakers “will inevitably need to do more” to keep a lid on price rises.

Traders interpreted the comments as pushback against rising market convictions that more aggressive action from the Bank was in the post.

Benchmark 10-year borrowing costs fell by as much as 0.5pc to 3.809pc following the governor’s remarks and the pound slipped slightly against the dollar.

Mr Bailey said: “I would caution against suggesting either that we are done with increasing the Bank Rate, or that we will inevitably need to do more. Some further increase in Bank Rate may turn out to be appropriate, but nothing is decided.”

The nine members of the MPC signalled last month that rates were close to peaking after 10 straight increases took the benchmark borrowing rate from 0.1pc to 4pc.

Speaking at a conference in London, the Governor suggested the MPC’S thinking had not changed.

He said: “Inflation has been slightly weaker, and activity and wages slightly stronger,” since the February meeting, “though I would emphasise ‘slightly’ in both cases.”

Markets were betting that rates would rise to 4.75pc this year but cut back positions. Investors now expect interest rates to peak at 4.5pc in late spring.

Traders had ramped up bets after a flurry of recent data suggesting global growth and inflation would be stronger than previously anticipated.

A closely-watched survey of UK factory bosses published yesterday showed output rose for the first time in eight months in February, adding to evidence that the economic backdrop is brightening.

Bank ratesetter Catherine Mann has also said it is “too soon” to stop raising interest rates.

Mr Bailey said policymakers had to stand ready to raise interest rates again to ward off stubbornly-high inflation or risk losing control of the economy.

He said the UK jobs market remained “very tight”, with a decline in the workforce suggesting the economy had less room to grow before price pressures started to build.

He also reiterated his concerns about the danger of inflation becoming entrenched through a self-reinforcing wage-price spiral, in which higher costs fuel higher wage demands.

“If we do too little with interest rates now, we will only have to do more later on. The experience of the 1970s taught us that important lesson,” he said.