Bank of England’s Ramsden: Interest rate CUTS should be considered if economic growth and inflation wrongfoot forecasters

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  • Bank of England Deputy Governor Dave Ramsden supported a further increase in interest rates in the UK.
  • But he said he would “look into” a rate cut if circumstances permit.
  • Ramsden said he is ‘aware’ that BoE actions are ‘making things worse’
  • UK Inflation Rises To 11.1% In October Amid High Energy And Food Prices

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The Bank of England deputy governor backed a further hike in interest rates, but said a rate cut should be considered if economic and inflationary pressures develop differently than current forecasts.

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The bank raised interest rates several times last year, with the base rate currently at 3 percent, to bring inflation down from its 41-year high of 11.1 percent.

But expectations that inflation could fall faster than expected, coupled with a worsening economic outlook, have led to speculation that the BoE may prefer to raise rates more slowly and eventually reach lower levels than previously forecast.

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Speaking Thursday at King’s College London, Deputy Governor Dave Ramsden said: “While I am leaning towards further tightening of policy, if the economy does not perform as I expected and persistence of inflation is no longer a concern, then I will consider cutting the Bank. Rate it the right way.

He described his policy setting approach as “cautious and responsive”.

Position: Bank of England Deputy Governor Dave Ramsden said he would consider cutting interest rates in the UK if the economic shifts are not as bad as he predicts.

On interest rates, Mr. Ramsden said: “We have raised the bank rate very quickly over the last year, and in past experience, a change in interest rates has a maximum impact on inflation only after 18 to 24 months.

“But it’s possible that an increase in the share of households with fixed-rate mortgages means it takes longer for the full effect of the policy to take place and/or more when it does, meaning that inflation will come down faster through 2023.”

He added: “There is a range of opinion among MPC members as to whether changes in inflation expectations and the possibility of their weakening add to other risks associated with the inflation outlook.

“My concerns about the emergence and entrenchment of an inflationary mentality were one of the factors that contributed to my minority voting to accelerate tightening, first in February and then in September of this year.”

He said: “In line with the MPC strategy, first outlined in the August 2021 MPR, the bank rate has been the active policy tool for monetary tightening, while quantitative tightening has been gradual and predictable in the background since March 2022. .

“As the MPC becomes more focused on the prospect of sustaining inflation, it has tightened policy more drastically.”

Mr. Ramsden also touched on Jeremy Hunt’s recent fall statement, warning that “the vast majority” of the Chancellor’s measures will not go into effect until April 2025, “therefore will have very little impact on the MPC’s three-year forecast horizon compared to what was assumed in November MPC’.

I am acutely aware that our actions exacerbate the difficulties caused by the current situation… Dave Ramsden

He added: “The MPC will be able to fully incorporate the fall announcement into its December policy round and its February outlook.”

Mr. Ramsden noted that UK and global markets remain “feverish” and sensitive to economic and financial developments.

Commenting on the impact of rising inflation on households, Mr Ramsden said: “2022 has been a very challenging year for the UK economy.

“Millions of households and businesses are experiencing great hardship as a result of the cost of living crisis.

“As a member of the MPC, I am acutely aware that our actions exacerbate the difficulties caused by the current situation.

“As challenging as the short-term implications for the UK economy are, the MPC must take the necessary steps in terms of monetary policy to bring inflation back to a sustainable 2% target over the medium term.

“I’m not yet convinced that domestic inflationary pressures from rising costs and firms’ price pressures are starting to ease.”

Interest rates and inflation – what happened … and what’s next?

For now, the Bank’s top management is likely to push for higher interest rates next month amid rising inflation, which is leaving a number of households facing a protracted cost-of-living crisis.

On November 3, the Bank announced that it would raise interest rates by 0.75 percentage points to 3 percent, the biggest increase since 1989.

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