‘Far too early’ to propose UK interest rate cuts, says Bank of England governor

UK interest rates will need to stay high for some time despite the sharp fall in the annual inflation rate, the governor of the Bank of England has warned.

Andrew Bailey used a speech in London on food prices to say there was more work to do to bring inflation back to its 2% target – and there remained a risk that borrowing costs might need to increase in the coming months.

“Let me be very clear: it is far too early to be thinking about rate cuts,” Bailey said.

Hopes that the Bank might soon start to reduce interest rates from the current 5.25% were raised after the Office for National Statistics revealed on Wednesday last week that the annual inflation rate had come down from 6.7% in September to 4.6% in October.

Bailey said inflation remained well above its official 2% target and the Bank’s rate-setting monetary policy committee (MPC) had to be alert to the threat that previous increases in the cost of food and energy would have knock-on effects on prices and wages.

“Food prices tend to be very salient to consumers and closely linked to inflation expectations, so the evolution of food prices will matter for wage growth looking ahead,” Bailey said.

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“While the inflation data for October released last week were welcome news, it is much too early to declare victory. Inflation remains too high, and we need to make sure we get it all the way down to the 2% target.”

The Bank raised interest rates 14 times in a row at the MPC’s meetings between December 2021 and August 2023 in efforts to bring down inflation from a peak of 11.1% in October last year.

The governor said: “Monetary policy is currently restrictive in the sense that, if we maintain this stance for long enough, we will squeeze inflation out of the system. That is what we will do. This also means being on watch for further signs of inflation persistence that may require interest rates to rise again.

“How long a restrictive stance will be needed will ultimately depend on what the incoming data tell us about the outlook for overall consumer price inflation over the medium term. The MPC’s latest projections indicate that monetary policy is likely to need to be restrictive for quite some time yet.”

The conflict in the Middle East had added upside risks to energy prices and consequently to the cost of food production, Bailey said.


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