A senior Bank of England official has played down growing expectations of an interest rate cut – even as a report warned that the economy was just ‘limping along’.
Deputy governor Ben Broadbent said the central bank needs to see a “more protracted and clearer decline” in wage growth but the job has been made harder by “muddy” data.
That is despite growing market expectations that it will go for a rate cut as soon as May amid signs of inflation easing and the economy stuttering.
Some fear that keeping rates too high for too long could tip Britain into recession.
But Broadbent said that while there were “clearly risks in moving only when you see the whites of inflation’s eyes, it may still be a price worth paying”.
Last week the Bank decided to hold rates for the third meeting in a row at a 15-year high of 5.25 percent, although the decision on whether to tighten them again or keep them unchanged was “finely balanced”.
Financial markets expect the MPC to lower rates by about one percentage point in 2024.
A report from auditing giant KPMG suggested that while the economy has proved relatively resilient, it faces more tough times ahead as mortgage bills go up and savings built up in the pandemic are spent.
KPMG said the economy is ‘limping along’ and predicts growth of just 0.5 percent this year and the same again next year – though those are slight upgrades on previous forecasts of 0.4 percent and 0.3 percent expansion for 2023 and 2024.
The Bank of England has raised interest rates to 5.25 percent as it tries to cool inflation. Figures tomorrow are expected to see it edging lower to 4.4 percent.
But the Bank’s rate-setting Monetary Policy Committee (MPC) have been at pains to stress that the battle is not yet won.
A key measure is wage growth – which recently hit record highs but is coming down.
Rate-setters worry that spiralling pay settlements could fuel further inflation.
Broadbent said the ‘muddy picture’ of wage data left a question mark over whether wage growth really had been ‘quite as marked’ as official figures show.
Under these latest estimates, wage growth was judged to have hit 7.3 percent in the three months to October, down from 7.8 percent, but still among the strongest increases since records began 20 years ago.
Broadbent indicated that uncertainty over the true state of the labour market and pay settlements meant that the MPC was minded to keep borrowing elevated for longer rather than cutting it soon and risk feeding price pressures.
