Bank of England Governor Projects Future Rate Cuts

(MENAFN) Bank of England (BoE) Governor Andrew Bailey stated on Tuesday that while the central bank's policy rate is on a declining trajectory, the current stance remains restrictive.

Speaking at a European Central Bank forum in Portugal, Bailey observed signs of economic slowdown, with similar trends emerging in the labor market. However, he cautioned that these trends would need to be reflected in prices for any meaningful impact to be seen.

"We are going to have to see those come through into the prices though," Bailey remarked.

Regarding the recent uptick in inflation within the UK, Bailey explained that the increase was largely tied to what the BoE terms “administered prices” and does not offer substantial insight into the broader economic landscape.

The Governor expressed caution about the extent to which the policy rate may eventually decrease, acknowledging significant uncertainty around future rate cuts.

"There is a huge uncertainty around it (rates). What we spend our time looking at is how restrictive the monetary policy is both now and going forwards. Our staff is doing a huge amount of work on that front to judge the restrictiveness of the policy in the current context and how restrictive it's going to be going forwards," said Bailey. "The policy remains restrictive and it will continue to be restrictive. Although the level of restrictiveness will come down over time.”

Bailey further stressed that monetary policy tightening is expected to ease towards a “neutral” stance in the future, but assessments must always be made in the current economic context.

These comments followed the BoE's decision to keep the policy rate at 4.25% during its June meeting, after four rate cuts since the bank began lowering borrowing costs in August 2023. The current rate is the lowest since February 2023, when it stood at 4%.

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