Bank of England Governor Andrew Bailey speaks at the central bank’s headquarters in the City of London, UK, on November 29, 2024.
Holly Adams | Bloomberg | Getty Images
Bank of England Governor Andrew Bailey suggested on Wednesday that Britain could be on track to cut interest rates four times over the next year if inflation continues its downward trend.
In a video interview with the Financial Times, he was asked whether the central bank would be prepared to cut interest rates by a quarter over next year if expectations of “some persistence” come true. Governor Bailey replied: “That’s correct.” . ”
Markets are currently pricing in interest rates being left on hold at the Bank of England’s December meeting, followed by three 25 basis point (bp) cuts, according to LSEG data. If all four cuts are implemented, the central bank’s key interest rate would be cut to around 3.75%, joining the central bank’s two cuts so far this year. The bank began cutting interest rates over the summer, and Governor Bailey told reporters in November that there was a need to take a “gradual” approach to cutting rates.
“Monetary policy needs to remain restrictive long enough for inflation to further dissipate the risk of a sustained return to the 2% target over the medium term,” he said at the time.
The central bank governor, who reviewed the inflation situation on Wednesday, added that consumer prices were falling faster than the central bank expected.
“A year ago we were saying that the current inflation rate would be about 1 percentage point higher than it actually is,” he said in an interview. “And I think that will be a good test for the (central banking) regime.”
Britain’s inflation rate surprised markets in October by rising to 2.3% from 1.7% in September, much higher than expected.
The pound was flat on Wednesday morning, reaching $1.2671 by 11:52 a.m., erasing some of its earlier losses.
Meanwhile, the UK 10-year bond yield remained flat at around 4.273%.
