Rate cuts are still ‘a long way off’ despite falling inflation, a top Bank of England official has warned
Rate cuts should still be ‘a long way off’ despite falling inflation, a key Bank of England official has warned.
Jonathan Haskel said the drop to 3.4 percent was “very good news” but that rate setters were instead focusing on “persistent and underlying inflation.”
“I think austerity is still a long way off,” he told the Financial Times. The comments will dampen hopes about the timing of an interest rate cut.
Caution: Rate-setting committee member Jonathan Haskel said the drop in inflation to 3.4% was “very good news” but “not informative about what we really care about”
Interest rates have been raised to 5.25 percent as the Bank of England battles inflation.
But hopes for a cut have increased as inflation falls and bank governor Andrew Bailey said “things are moving in the right direction.”
They are also excited by the withdrawal of the two most aggressive members of the rate-setting committee – Haskel and Catherine Mann.
This week, Mann said markets were “pricing in too many cuts.” By last night, bets on a June rate cut had faded and August was seen as more likely.
Figures from the Office for National Statistics confirmed yesterday that the economy shrank for two consecutive quarters at the end of last year, meeting the technical definition of a recession.
Over a six-month period the decline was 0.4 percent.
Economists are divided on exactly when rates will fall and by how much, but most expect a series of cuts this year.
Bank of England Governor Andrew Bailey said in an interview with the FT last week that he is not against austerity in 2024. But other MPC members will need convincing and only one vote for a cut in the last meeting.
Future declines: Capital Economics predicts bank rate to be cut to 3% by 2025
According to the latest forecasts from Capital Economics, the Bank of England will cut the base rate to around 3 percent in 2025.
Broader market expectations also all point to the Bank of England cutting base rates later in 2024, even though these have been revised upwards since the start of the year.
At the beginning of this year, investors expected that gambling rates could be cut to 3.75 percent by Christmas.
But it is now thought that interest rates will fall to just 4.5 percent this year – with the first step expected to take place in June.
> Read more: When will interest rates start to fall?