Bank of England (BoE) governor Andrew Bailey has hinted that he may support an interest rate cut at the March meeting, as inflation continues to move closer to the central bank’s 2% target. Speaking to Parliament’s Treasury Committee, Bailey emphasised that he is waiting for additional confirmation before backing any reduction in borrowing costs.
“Well, we’ll see. I think at the moment we’re still a little way off the next meeting… It is a genuinely open question at the moment,” he told MPs, signalling that the final decision remains uncertain.
Bailey has become a decisive voice on the Monetary Policy Committee (MPC). He switched to supporting a rate cut in December but voted to hold rates steady in February. The committee’s eight other members remain evenly split between those favouring lower rates and those preferring to maintain current borrowing costs.
“The question for me is, have I seen enough further evidence to feel confident to take that step?” Bailey explained, referring specifically to the 19 March MPC meeting.
Inflation Appears to Be Slowing
Recent data suggests that UK inflation is slowing more quickly than anticipated. The BoE now expects inflation to return to its 2% target sooner than previously projected. Bailey highlighted that it is “very reasonable” to expect inflation around target in April, with the official figures to be released in May.
UK inflation slowed to 3% in January, partly due to weaker goods prices and trade effects, particularly from China. Food prices fell more than expected, while services prices have been slower to decrease. This combination of factors has contributed to a general easing in the inflation rate, raising the possibility that the BoE could reduce borrowing costs without reigniting price pressures.
MPC Members Split on the Timing of a Cut
Not all MPC members are convinced that the time is right for a rate cut. Megan Greene, who has consistently voted to hold rates steady, cited three main concerns. She wants to see further evidence that wage growth continues to ease, that business and household inflation expectations decline, and that the “handoff” from above-target inflation to the BoE’s 2% goal occurs smoothly.
BoE chief economist Huw Pill echoed a cautious stance, warning that easing policy too quickly could risk inflation rising again. Pill stressed that controlling underlying inflationary pressures remains necessary, signalling that he is likely to oppose any March cut unless the evidence is compelling.
Conversely, external MPC member Alan Taylor argued that additional rate reductions may be required to bring policy closer to a neutral level that neither stimulates nor restrains growth. He noted that if the UK economy slips into recession, interest rates could fall below 3% to support economic activity.
Market Expectations and Wage Pressures
Investors increasingly expect that the BoE will lower borrowing costs at the March meeting and may implement at least one more cut before the end of the year. A key factor for policymakers will be the labour market: whether the recent softening will ease wage pressures or whether workers will continue to demand higher pay to offset several years of above-target inflation.
“We are seeing some softening in the labour market,” Bailey said. “Is that going to feed through into expectations? How long will that take to impact wage bargaining?”
This uncertainty adds complexity to the decision-making process, as policymakers balance the need to support growth with the ongoing task of keeping inflation in check.
International Perspective
Bailey also touched on international monetary policy, commenting on Kevin Warsh, US President Donald Trump’s nominee for Federal Reserve chair. He described Warsh as a credible choice who strongly supports central bank independence, suggesting that the US monetary framework is likely to remain stable even with leadership changes.
Looking Ahead
The Bank of England is scheduled to announce its interest rate decision on 19 March. With inflation showing signs of slowing, some economists and investors anticipate a modest cut, while others urge caution. For homeowners, borrowers, and savers, the upcoming decision will provide a clearer signal of the UK’s economic trajectory and the likely cost of borrowing for the months ahead.
As policymakers weigh evidence from inflation trends, wage growth, and the labour market, the March meeting could mark a turning point in the BoE’s monetary policy, potentially easing financial pressure on households and businesses alike.
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