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Expectations of an early rate cut are rising after the Bank of England governor signaled the first reduction in borrowing costs since 2020.
After the BoE’s Monetary Policy Committee voted this week to keep interest rates on hold for another month, and after Andrew Bailey said in an interview that a rate cut was “on the way”, economists said the central bank’s This suggests that a reduction in the base interest rate is now expected.
The governor’s change in tone has led some industry observers to argue that a rate cut could come as early as May, but the reality is that the first rate cut could be in June. Predictions have been made.
In an interview with financial timesMr Bailey indicated that a rate cut would be on the agenda at the next MPC meeting after inflation fell to 3.4% in February.
Although he declined to say when or by how much a rate cut would occur, the fact that the central bank governor has mentioned the possibility of a rate cut has been noted by economists.
“The fact that we’re on a curve with cuts this year overall is not unreasonable to me,” he said. F.T.. Asked whether there would be live debate on policy moves at future MPC meetings, he added: We make new decisions every time. ”
The move comes as the Bank of England chief faces continued criticism from Tory MPs, who have called on him and his committee to act more quickly to reduce borrowing costs. .
Deutsche Bank now sees this as a significant change in stance, stating: In our view, the MPC has indeed opened the door to his May rate cut. We think the debate around rate cuts is solidifying. ”
Paul Dales, chief UK economist at Capital Economics, echoed this assessment. I: “I take this as a sign that the central bank is getting closer to cutting rates.
He added: “Governor Bailey seems to have enough confidence that all the inflation indicators are moving in the right direction and there is enough to cut rates.”
However, there are doubts that more optimistic noise from the central bank could lead to a rate cut as early as May, with June still seen as the most likely outcome.
Willem Buiter, former MPC external member: “There is no doubt that the latest inflation figures were a pleasant surprise, with headline CPI inflation falling from 4% in January 2024 to 3.4% in February 2024.
“Does this mean bank rates will be cut at the May MPC meeting? I would say that is unlikely unless there is another similar surprise by May 9th.
He added: “May would be surprising and probably wrong.”
“There’s no longer a debate about raising rates, and I think we’ll see more MPC members voting to cut rates soon,” said Edward Jones, an economist at Bangor University. However, it is unclear whether there will be a rate cut in May. The Bank of England will want to be confident that it has won the battle against inflation. ”