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Andrew Bailey, Governor of the Bank of England, at the central bank’s headquarters in the City of London, United Kingdom, on November 29, 2024.
Holly Adams | Bloomberg | Getty Images
Bank of England governor Andrew Bailey said on Wednesday that if inflation continues to fall, the UK could be on track for four interest rate cuts over the next year.
Asked in a video interview by the Financial Times whether the central bank would be prepared to make four quarter-point cuts over the next year if its forecasts of “some (inflation) resilience” come true, Bailey said: “Exactly”.
According to LSEG, markets are currently pricing in an interest rate hold at the Bank of England’s December meeting, followed by three 25 basis point rate cuts. If all four cuts go through, they would bring the bank’s key interest rate down to around 3.75%, adding to the BoE’s two cuts this year. The institution began the cuts over the summer, and Bailey told reporters in November that the bank would have to take a “phased” approach to lowering rates.
“Monetary policy will need to remain accommodative long enough to diffuse risks to a sustainable return of inflation to the 2% target over the medium term,” he said.
Surveying the inflation picture on Wednesday, the BoE chief added that consumer prices had fallen faster than the central bank had expected.
“A year ago, we said that inflation today would be about 1% higher than it actually is,” he said during the interview. “And that, I think, is a good test of the (central bank) regime.”
UK inflation surprised markets with a rise to sharply higher than the expected 2.3% in Octobercompared to 1.7% in September.
Sterling was slightly lower on Wednesday morning, trading up 0.06% at $1.2666 at 11:15 London time. Meanwhile, the UK 10-year gilt yield was flat at around 4.276%.
