Bank of England deputy governor Ben Broadbent said yesterday that an interest rate cut is “possible” this summer, while defending the institution’s management of the inflation crisis.
Broadbent’s comments, ahead of tomorrow’s figures expected to show inflation falling close to 2 per cent, reinforce market expectations that a cut could come as soon as June.
And he said “things would have been a lot worse” if politicians were still in charge of setting rates as they were in previous inflation crises.
The comments came in Broadbent’s final speech before he leaves the Bank at the end of next month, after a decade as deputy governor.
During that time, inflation soared to 11.1 percent – a four-decade high and several times higher than the Bank’s 2 percent goal – prompting it to raise interest rates to 5.25. percent.
Cautious optimism: Bank of England deputy governor Ben Broadbent said an interest rate cut is “possible” this summer and the latest figures are expected to show inflation will fall to close to 2%.
Now, however, inflation is falling rapidly and this week’s figures are expected to show it fell to 2.1 percent in April.
That would be lower than the 2.4 percent rate in the eurozone and the 3.4 percent level in the United States (the first time it has been lower than in both economies since March 2022).
Now that inflation appears to be on the decline, Broadbent suggested the Bank’s Monetary Policy Committee (MPC) could soon ease the pressure that high rates are putting on the economy.
“If things continue to evolve with their forecasts – forecasts that suggest policy will have to become less restrictive at some point – then it is possible that the Bank’s rate could be cut at some point over the summer,” he said.
Broadbent also used the speech to defend the Bank of England’s independence amid criticism that it was too slow to react to spiraling inflation.
He argued that the current system was better than the old model when politicians set rates.
Broadbent said that during the energy price shock of the 1970s, inflation in the UK had remained “extremely high… even after the original shock had faded” and much higher than in Germany.
But over the past three years it had proven to be “much less durable and much closer to what is happening in other parts of Europe.”
The difference was that Britain now had rates set independently by its central bank, as Germany did five decades ago, Broadbent said.
“I have no doubt that if we had gone through the pandemic and the war with the monetary regime of the 1970s, in which politics was governed by both the political and economic cycle, things would have been much worse “. he added.
