By Andy Bruce
STELLENBOSCH, South Africa (Reuters) – Wage pressures in Britain have raised the risk of inflation holding above the Bank of England’s target, the bank’s Deputy Governor Dave Ramsden said on Friday, though he added that interest rate cuts did not necessarily need to be slow.
Ramsden said he had been surprised by official data which showed that private-sector wage growth had picked up to an annual rate of 6.2% in the fourth quarter rather than weakening.
“That was a concerning development for me,” he said in a question-and-answer session after giving a speech at Stellenbosch University near Cape Town, where he attended a Group of 20 meeting of finance ministers and central bankers.
Moreover, Ramsden said a BoE survey of employers showed their pay growth expectations for 2025 were near the top of an earlier forecast range of 2-4%, whereas Ramsden had thought it would be below 3%.
“I no longer think that risks to hitting the 2% inflation target sustainably in the medium term are to the downside,” he said. “Instead, I think they are two-sided, reflecting the potential for more inflationary as well as disinflationary scenarios.”
Ramsden voted with the majority of the BoE’s Monetary Policy Committee to cut the bank’s main interest rate to 4.5% from 4.75% on February 6. Two MPC members voted for a bigger, half-point cut.
At the previous meeting in December, Ramsden had been part of a more dovish minority who voted for a quarter-point cut when the majority of the MPC wanted to keep rates on hold.
‘SAFE DESCENT’
Ramsden said he still believed rates were on a downward path and that “the core disinflationary process remains intact”.
“A gradual and careful approach is always needed on the way down a mountain to ensure a safe descent and a successful outcome. But that doesn’t always mean the descent has to be slow,” he added.
The seven MPC members who backed the quarter-point rate cut this month split between those who signalled a “careful” approach to cutting rates further – the main language used in the BoE’s February policy statement – and another group who preferred the word “cautious”, implying slower rate cuts.
“There may be circumstances when a slower than expected descent is justified but there will also be times when conditions require that the pace has to quicken,” Ramsden said.
The BoE expects inflation to accelerate from 3.0% in January to around 3.7% in the third quarter, before returning to its 2% target in late 2027. Some economists think it is on course to hit 4%.
Ramsden said his tolerance for above-target inflation was “very, very low” and highlighted the risk that Britain’s weak growth reflected a problem with the economy’s capacity to meet even subdued levels of demand. This capacity might be “even weaker” than the BoE had assessed.
“In those circumstances, the speed limit of the economy would be even lower, the labour market may remain tighter for longer, and wages could remain elevated, leading to greater persistence in domestic inflationary pressures,” he said.
(Reporting by Andy Bruce, writing by David Milliken; editing by William James and Gareth Jones)
