Interest rate cut is ‘off the table’, says Bank of England governor
Andrew Bailey has said cutting interest rates is “off the table at the moment” in the clearest sign yet borrowing costs are likely to stay elevated for the rest of the year.
The Bank of England governor said on a panel at the European Central Bank’s annual conference in Portugal that inflationary pressures following the war in the Middle East had changed the outlook for monetary policy.
“There was an expectation that we would cut rates this year,” he said. “That was off the table in March, and it’s off the table at the moment”.
Bailey backed a hold in the monetary policy committee’s (MPC) June meeting that left interest rates unchanged at 3.75 per cent.
He argued the fall in oil prices following the fragile peace agreement between the US and Iran was “encouraging” but warned they had yet to come down to pre-war levels.
This week, Brent crude – the international benchmark for oil prices – fell below $71 per barrel marking its lowest level since the end of February when the war began.
The oil market has suffered a volatile few months after supply was choked off by Iran’s closure of the Strait of Hormuz. Prior to the war, around a fifth of the world’s global supply flowed through the narrow waterway in the Gulf.
As part of peace talks Iran and the US are negotiating who will control the crucial passage.
Bailey ‘not happy’ with rate of inflation
Bailey said in June he would “tolerate temporarily above-target inflation as part of a return to target”. Inflation remained at 2.8 per cent in the Office for National Statistics latest release this month, still well-above the Bank’s target of two per cent.
Earlier this week, he told CNBC the Bank was “not happy” with the rate of inflation and was “not complacent at all”.
Kevin Warsh, who chairs the Federal Reserve, said on Wednesday he believed inflation risks in the US had “come down” but reiterated his commitment to bringing “price stability”.
Two policymakers – external member Megan Greene and chief economist Huw Pill – backed a hike in the Bank of England’s last meeting, warning households were more sensitive to inflationary shocks than they were in 2022.
Bailey said in Portugal: “We’re very focused on the risks of pass‑through of the energy prices to indirect effects, and things like food prices and the second‑round effects.
“We obviously don’t want inflation to become embedded.”
The MPC is next scheduled to meet on July 30.