Interest rate reductions are approaching their conclusion, according to the Bank of England
Bank of England MPC Discusses Interest Rates and Inflation
The Bank of England's Monetary Policy Committee (MPC) held a meeting this week, with Governor Andrew Bailey at the helm. The MPC consists of the Governor, three deputy governors, the Chief Economist, and four external members appointed by the Chancellor of the Exchequer.
During the meeting, Deputy Governor Clare Lombardelli expressed her belief that the neutral rate is likely to be nearer the "upper end" of a range between two percent and four percent. Governor Bailey highlighted weakness in the labor market, while expressing uncertainty about when and how quickly interest rate cuts would be made due to fears of stubborn inflation in the UK economy.
External member Megan Greene said the rate-cutting cycle could "not go on forever," and both rate-setters flagged concerns about price-setting behaviors given higher inflation expectations among businesses and consumers.
In a separate note, Bailey defended the independence of the Federal Reserve amid threats made by President Donald Trump. He also stated that the steepening of yield curves across the developed world is due to a global driver.
The Governor also addressed concerns about the Bank's quantitative tightening (QT) programme, stating that the Bank is considering the impact of its QT programme on public finances. He has not yet decided whether the Bank's QT programme will be paused next month.
Alan Taylor, a rate-setter, stated that easing wage growth would weigh down on price growth in the coming months. The MPC members indicated that markets may be correct in predicting no further cuts this year.
Bailey also expressed concern over attempts to "trade off" monetary and financial stability maintained by independent central banks. He stated that threats to the independence of central banks are "very dangerous."
In a more optimistic tone, Greene stated that the Bank is "closer" to its last cuts. Despite the uncertainties, the Bank of England is less likely to make further cuts to interest rates this year.
Lastly, Bailey stated that the turmoil in bond markets is not a problem unique to the UK. The risks to inflation expectations are more "salient" due to higher food price inflation, according to Greene. The MPC's discussions and decisions will be closely watched in the coming months as the UK economy navigates through these challenging times.
