There is “considerably more doubt” over when future interest rate cuts can take place, the governor of the Bank of England has said.
Andrew Bailey told a committee of MPs that the risks around inflation had gone up and he was “more concerned” about weakness in the labour market.
Bank staff projections expect the main consumer prices index measure of inflation to rise to 4% this year – double the 2% target rate – from its current level of 3.8%. Food prices are proving the main driver currently, with part of the increases blamed on government tax rises on employers.
On the prospects for further interest rate reductions this year, Mr Bailey said: “There is now considerably more doubt about when and exactly how quickly we can make those further steps.”
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Interest rates are elevated to help ease the pace of price growth and cut, when able, to help maintain inflation at the 2% target level.
The governor was speaking after the Bank’s split vote last month that resulted in a quarter point reduction for Bank rate to 4%.
At that time, the governor said that while he still believed that the future path for borrowing costs was still downwards gradually over time, financial markets had since understood that the outlook for the pace of cuts was more murky.
“That’s the message I wanted to get across”, he told the Treasury select committee.
“Now, I think actually, judging by what’s happened, certainly to market pricing since then, I think that message has been understood.”
A further quarter point cut to 3.75% is no longer fully priced in…
