‘Far too early’ to propose UK interest rate cuts, says Bank of England governor

21 Nov, 2023

‘Far too early’ to propose UK interest rate cuts, says Bank of England governor

Bank of England Governor Andrew Bailey has cautioned against premature expectations of interest rate cuts, asserting that sustained high interest rates are imperative despite a recent decline in the annual inflation rate. In a speech in London focused on food prices, Bailey emphasized the ongoing work required to bring inflation back to the 2% target.

While hopes rose for potential interest rate reductions following a drop in the annual inflation rate from 6.7% in September to 4.6% in October, Bailey stressed that it was too early to consider rate cuts. He highlighted that inflation, though improved, still exceeded the official 2% target.

Addressing the risk of previous increases in food and energy costs affecting prices and wages, Bailey underlined the significance of monitoring food prices, closely linked to inflation expectations. Despite welcoming the recent inflation data, Bailey emphasized the need for caution, stating, "Inflation remains too high, and we need to make sure we get it all the way down to the 2% target."

The Bank of England had raised interest rates 14 times consecutively between December 2021 and August 2023 to curb inflation from its peak of 11.1% in October of the previous year. Bailey affirmed the current restrictive monetary policy, aiming to squeeze inflation out of the system. However, he acknowledged the potential for further signs of inflation persistence, suggesting that interest rates might need to rise again.

Bailey highlighted the added upside risks to energy prices and, consequently, the cost of food production due to the conflict in the Middle East. The governor's cautious stance reflects the need for sustained vigilance and a restrictive monetary policy for the foreseeable future, contingent on incoming data and the outlook for consumer price inflation over the medium term.