Several members of the Bank of England’s Monetary Policy Committee (MPC) have issued a cautionary note about the outlook for interest rates, warning that stubborn inflation could delay further rate cuts this year. Their comments stand in contrast to what many financial analysts had been expecting.
Last week, the MPC voted to reduce the base interest rate to 4.25 per cent. Within the committee, there was a split in opinion — two members pushed for a deeper 50 basis point cut, while two others felt rates should remain unchanged.
This division within the committee signals a more cautious or ‘hawkish’ stance from the Bank. During a recent conference held at King’s Business School in London, three MPC members expressed concerns that ongoing inflationary pressure, particularly fuelled by public uncertainty about the economy, could slow down the pace of rate reductions.
Deputy Governor Clare Lombardelli, London Business School lecturer Megan Greene, and economist Catherine Mann all shared views suggesting that the committee remains particularly focused on the potential for inflation to remain higher than anticipated.
Their remarks underline the Bank’s growing wariness over cutting rates too quickly, as inflation driven by public sentiment and spending habits could remain a persistent challenge.
Clare Lombardelli raised concerns about the continued strength of wage growth, calling it a major contributor to underlying inflationary pressures.
She noted that the current pace of pay rises remains too strong to align with the Bank’s inflation target. In particular, she pointed to the 5.9 per cent annual wage growth recorded in February, suggesting it could be a sign of “second-round effects” that may further fuel inflation throughout the year.
Lombardelli added that, even with the current base rate at 4.25 per cent, monetary policy remains tight enough to apply downward pressure on inflation.
She explained that if inflation turns out to be more persistent than previously expected, the current interest rate would still act as a tool to reduce it. At the same time, the modest 25 basis point rate cut introduced in May serves as a form of precaution, helping to manage the potential risk of a sharper slowdown in economic demand.
Split over interest rate cuts
Megan Greene, often regarded as one of the most hawkish voices on the Monetary Policy Committee, argued that inflation should no longer be considered “transitory,” especially given the rising expectations among Britons about price increases in the coming months.
She remarked, “There is still cause for concern regarding the persistence of inflation.”
The recent interest rate cut marked the Bank of England’s fourth since the start of its easing cycle in mid-last year, which began shortly after inflation peaked at 11 per cent in October 2022.
This move also took place against the backdrop of a tense trade conflict between the US and China, although tensions have since eased following an agreement to reduce tariffs for three months.
Both Greene and Deputy Governor Clare Lombardelli supported the interest rate reduction. On the other hand, external member Catherine Mann preferred to keep rates unchanged, despite previously advocating for a 50 basis point cut during the February meeting.
During the Bank of England watchers’ conference in London, Mann highlighted the risk posed by volatility in public expectations about future price rises.
Download NOW
4 Simple Steps To Becoming Wealthy Through Property