LONDON (Reuters) – The Bank of England should wait for more conclusive evidence that strong inflation pressures in Britain are becoming less stubborn before it moves to cut interest rates, BoE policymaker Megan Greene said on Thursday.
Greene said in a speech that there was more uncertainty about the degree to which the persistence of inflation – chiefly in the country’s tight labour market – was easing than about how the BoE’s high interest rates were weighing on the economy.
“In considering for how long we must retain our restrictive stance before policy should be eased, I think the burden of proof therefore needs to lie in inflation persistence continuing to wane,” Greene said in a speech delivered at the headquarters of MakeUK, a manufacturing industry body.
Greene voted last week to keep Bank Rate at 5.25% – its highest since 2008 – along with the majority of the BoE’s nine-strong Monetary Policy Committee although two members backed a cut.
In April, she said interest rate cuts in Britain should remain “a way off” because of the persistence of inflation pressure.
BoE Governor Andrew Bailey said last week that a rate cut at the central bank’s next meeting in June “is neither ruled out nor a fait accompli.”
Financial markets see a roughly 50% chance of a first quarter-point rate cut next month and a reduction in August is seen as a certainty, followed by another cut before the end of the year.
Official data next week is expected to show British consumer price inflation slowed to close to the BoE’s 2% target in April, helped by falling energy costs and way down from a peak of 11.1% in October 2022.
But services price inflation – which stood at 6% in the 12 months to March, reflecting strong wage growth – is likely to remain higher than the headline rate, posing a risk of sticky long-term price pressures and preventing the BoE from moving quickly to cut borrowing costs.
Earlier this week, BoE Chief Economist Huw Pill said the central bank might be able to consider cutting rates over the summer although he repeated his concerns that Britain’s labour market remains tight by historical standards.
(Reporting by William Schomberg and Muvija M; editing by William James)
