The Governor of the Bank of England, Andrew Bailey, has indicated that interest rates are still expected to decline, despite uncertainties in the global economy. His comments came during a Treasury Committee meeting where members of the Monetary Policy Committee (MPC) were questioned about the direction of future monetary policy.
Bailey made it clear that domestic inflation remains the central concern guiding the Bank’s decisions. While global developments—such as trade tensions involving the United States—pose additional risks, the Bank of England continues to prioritise home-grown inflationary pressures when shaping its interest rate outlook.
One of the key domestic factors influencing the latest policy move is the state of the UK labour market. According to Bailey, signs of a slowdown in job market activity have become evident, which supports the case for loosening monetary policy.
He stated that the Bank expects to see wages begin to decline this year, a trend that would align with weakening labour demand. These forecasts have been informed not only by data but also by Bailey’s conversations during visits to businesses and communities across the country.
Reaffirming a cautious approach, Bailey emphasised that any changes to the Bank Rate would continue to follow a “gradual and careful” path. This sentiment has been consistent in recent communications from the central bank, reinforcing its data-led strategy.
Last month, the Bank of England reduced interest rates by 0.25 percentage points, marking a modest step in what could be a longer-term easing cycle. The decision highlighted divisions within the MPC, with members split over how aggressively to cut rates.
The nine-member committee voted by a narrow majority of five to four in favour of the 25 basis point cut. Notably, Swati Dhingra and Alan Taylor called for a larger reduction of 0.5 percentage points, reflecting concerns about the economic outlook.
Catherine Mann, an external MPC member who had also previously supported a more aggressive cut, cautioned that it was still too early to determine the pace or extent of further rate reductions. Her remarks reflect the uncertainty surrounding both domestic and international economic trends.
Swati Dhingra added during the session that many households are still feeling the squeeze from the Bank’s previous tightening cycle. She noted that there is now a shared view among policymakers that the current monetary stance no longer needs to be as restrictive.
Financial markets have started to adjust their expectations accordingly. Traders are increasingly pricing in additional rate cuts, with some forecasts suggesting the Bank Rate could drop by nearly one percentage point before the end of the year.
Such a shift would imply four more quarter-point cuts, marking a significant change from the Bank’s earlier, more conservative approach to easing policy. Investors are watching upcoming economic indicators closely to gauge whether this path will materialise.
Despite these expectations, Bailey and other MPC members have stressed that the Bank will continue to monitor inflation and employment figures carefully before making further adjustments.
The next meeting of the Bank of England’s Monetary Policy Committee is scheduled for 26 June. Market watchers and economists will be paying close attention to any updated guidance that emerges following that session.
Until then, the focus will remain on how domestic conditions—particularly inflation trends and wage growth—develop over the coming weeks. Any deviation from the expected path could influence the Bank’s stance on interest rates.
For now, however, it appears that the Bank is cautiously paving the way for further cuts, while maintaining the flexibility to respond to new data or external shocks.
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