Table of Contents
A senior Bank of England official has called for a “cautious and steady approach” to cutting interest rates amid inflationary pressures.
Megan Greene said it was “appropriate to take a phased approach to removing restrictions”, echoing Bank of England Governor Andrew Bailey.
Greene, a member of the Bank’s rate-setting Monetary Policy Committee (MPC), also warned that concerns about next month’s Budget could be holding back investment and spending.
Cautious: Megan Greene (pictured) is a member of the Bank of England’s rate-setting Monetary Policy Committee
The bank cut interest rates by a quarter of a percentage point to 5 percent last month after inflation edged closer to its 2 percent target.
But it has resisted pressure to follow the lead of the US Federal Reserve and the European Central Bank and step up the pace. Both have already cut rates by half a percentage point.
This month, rates were left unchanged as Bailey said the Bank must be “careful not to cut too quickly.” The less enthusiastic approach has boosted the pound, which yesterday hit a fresh two-and-a-half-year high against the dollar, above $1.34, before falling back.
Greene is one of the most hawkish members of the MPC, but she backed the decision by 8 to 1 to leave rates at 5 percent.
Markets expect rates to be cut by another quarter of a percentage point in November and to fall below 4 percent by the middle of next year.
But in a speech in Newcastle yesterday, Greene flagged the risks that inflation could prove more persistent than expected.
Core inflation in the services sector has proven difficult to control and wage growth “remains above what our set of models can explain,” he said.
This could mean that the Bank’s interest rate policy “is not as restrictive as we had thought,” implying that rates may not have eliminated inflation from the system.
“Given this risk, I believe it is appropriate to take a phased approach to easing restrictions,” Greene said.
Greene said she would wait for data showing inflation risks were easing, adding: “Until then, I think a cautious and steady approach to monetary policy easing is appropriate.”
Asked whether concerns about tax rises in the Budget were holding back growth, he said: “There is a lot of uncertainty in the UK. In general, uncertainty is causing businesses and households to wait for some of the situation to be resolved.
“And we may be seeing some of that.”
DIY INVESTMENT PLATFORMS
AJ Bell
AJ Bell
Easy investment and ready-to-use portfolios
Hargreaves Lansdown
Hargreaves Lansdown
Free investment ideas and fund trading
interactive investor
interactive investor
Flat rate investing from £4.99 per month
Saxo
Saxo
Get £200 back in trading commissions
Trade 212
Trade 212
Free treatment and no commissions per account
Affiliate links: If you purchase a product This is Money may earn a commission. These offers are chosen by our editorial team as we believe they are worth highlighting. This does not affect our editorial independence.