- Huw Pill said there was not yet “sufficient evidence” to reduce financing costs
Rate cuts are ‘still a long way off’, a senior Bank of England official warned yesterday.
In a blow to millions of families with mortgages, Huw Pill, the central bank’s chief economist, said there is not yet “enough evidence” to reduce borrowing costs.
At the same time, “stunning” employment figures in the United States dampened expectations of interest rate cuts across the Atlantic.
Blow: Investors now predict interest rates will be cut to just 4.5 percent in December – and could remain unchanged until summer
Bond yields – a key measure of the cost of borrowing in financial markets – edged higher amid a major revaluation of when rates will be cut. The Bank kept British interest rates again on Thursday at the highest point in almost 16 years, namely 5.25 percent.
For a long time it was hoped that the first cut would come this spring.
And at the start of the year, markets expected interest rates to fall to 3.75 percent by the end of 2024.
But investors are now predicting that rates will only be cut to 4.5 percent in December – and could remain unchanged until the summer.
In the US – where interest rates were kept between 5.25 percent and 5.5 percent by the country’s central bank, the Federal Reserve, this week – official figures showed 353,000 jobs were created last month.
That was much more than expected and led to fears that an early interest rate cut in America would be less likely.
“For me at least, it’s critical that we don’t have enough evidence yet,” Pill said, referring to British interest rates.
‘The moment when a reduction in bank interest rates could be possible is therefore still far away.’
But while interest rates are expected to remain high for a while, Pill says that doesn’t mean they won’t change.
“The need for restraint does not mean that bank rates should remain at current levels indefinitely,” he said.
On Thursday, Bank Governor Andrew Bailey said British inflation was “moving in the right direction”, while removing language suggesting interest rates could still rise.
Economists were split three ways on the future path for interest rates – the widest divide in 16 years. Of the nine rate setters, six – including Pill – voted to put them on hold, two voted for an increase and one voted for a reduction.
Tom Simons, economist at broker Jefferies, described the US jobs figures as “stunning” and said a Fed rate cut as early as March was “unthinkable”.