Bank of England governor expects interest rates and pay to decrease this year
The governor of the Bank of England said on Tuesday that the trajectory of interest rate cuts is still downwards despite global uncertainties, as members of the Monetary Policy Committee were quizzed in a Treasury Committee meeting.
Andrew Bailey said his primary consideration for the most recent rate cut was the question of domestic inflation, with international drivers such as the US's tariff war also an uncertain factor on the bank's horizon.
He cited the loosening of the UK's labour market as one key indicator in the bank's most recent decision.
The bank is taking the view that it will "see pay decreasing this year," he said, and that the rate path would remain intact based on immediate data and his trips around the country.
"Gradual and careful remains my guiding line as it were," he added.
Threadneedle street cut interest rates last month by 25bps, with MPC members locked in a three-way split in the vote.
Read more: Eurozone inflation cools to 1.9% in May paving way for interest rate cut
The Bank's nine-person MPC voted by a majority of five to four to reduce rates by 0.25 percentage points. Two members of the MPC, Swati Dhingra and Alan Taylor, wanted to push through a bigger 0.5 percentage point reduction to interest rates.
On the question of future cuts, external MPC member Catherine Mann, who had voted for a 50bps cut in February, said the bank could not yet say how fast or how far it would look to cut.
There's a "general view that we don't need to weigh down on living standards as much as we have been," said Dhingra in the hearing.
The rationale comes as financial markets increasingly bet on further monetary easing, with pricing indicating that Bank Rate could fall by nearly a full percentage point by the end of the year. That would imply four more quarter-point cuts, a shift from the BoE's earlier stance of 'gradual' policy changes.
The next Bank of England meeting is set for 26 June.
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