Bank of England should be ‘more careful’ about rate cuts, say deputy governor
A Bank of England rate-setter has said that policymakers need to be “more careful” about cutting rates after years of high inflation, adding that it was “too soon to say” whether President Trump’s tariffs will weigh on price growth in the UK.
Sarah Breeden became the second official since Trump’s Rose Garden speech to take a coy line on the Bank’s likely inflation projections after her fellow deputy governor Clare Lombardelli told a think tank that the effects of tariffs on prices remained unclear.
Several economists have claimed that tariffs will have be disinflationary due to a slump in demand and the possible diversion of cheap goods to Britain.
Breeden said that the Bank would have to evaluate disruptions in supply chains and demand shocks before a full judgement was made next month.
“The impact on inflation is not clear cut,” she told an event hosted by MNI.
Breeden said that it was “extremely unpredictable” to know what lies ahead for global trade but that the uncertainty would have a “chilling effect” on demand among firms and consumers.
The Bank deputy governor also said other changes on a domestic front and in the value of the pound sterling would be closely monitored.
“We will be thinking about what the likely impact on inflation will be,” she said. “What we’re also doing, though, is remembering the domestic uncertainties that we face”
“Is there likely to be weakness in activity as we look ahead that might lead to further downside risks? I honestly think it’s too early to say how all of those things will combine.”
Jonathan Haskel, a former rate-setter, told City PM he would vote to hold interest rates in May due to persistently high inflation were he still on the Monetary Policy Committee (MPC).
MPC members Swati Dhingra and Megan Greene have claimed that tariffs will have a disinflationary impact on the price of goods in the UK.
Breeden that the downside effect on growth was “pretty clear” and said it was important the Bank do a “good job” of assessing impacts in May.
She also indicated that any approach taken by MPC, a group of economists that set Bank Rate, would be vastly different if inflation had not peaked at around 11 per cent in the wake of Russia’s invasion of Ukraine.
“As it happens, [the economic shock] is coming on top of COVID. It’s coming on top of the war in Ukraine and the impact on energy prices. We’ve got a whole host of other regulated prices going up and energy prices being higher, at least until the recent fall in the oil price,” she said.
“I think we just have to be more careful than normal in that environment.”
The Bank of England is widely expected to cut interest rates at its upcoming decision next month and markets have priced in between three and four cuts this year.