Bank of England likely to cut rates in June, economist says
Economist at Panthenon Macroeconomics. He’s with us live from London. And Robert, it’s so good to have you on today. Thanks for being here. So no change. Good morning from the BOE today. But you really do get the sense, just reading into some of the most recent commentary, that the board is most definitely weighing the case for a cut here. That’s right, you’ve had Governor Bailey pushing the case for a cut pretty strongly over the past month. His words immediately after the last meeting actually were really quite different to the minutes that describe the rest of the committee. He suggests that persistent inflation is fading, there’s nothing to worry about in the latest data, and the bank can begin easing policy. He’s also been joined by NPC member Dave Ramsden, who importantly has previously been on the end of the committee, the preferred higher interest rates and he also seems ready to vote for a cut soon. So you’ve maybe got two other members to join Swati Dhingra in voting for a cut. So the committee is moving in that direction and that reflects the UK’s economic position where inflation has slowed very sharply from the double digit rates last year, wage growth is coming down, the labour market is easing. So the Bank of England is is getting to a position where it can cut rates indeed. So I guess the question is when? What does the BOE need to see? When will the board be convinced that inflation is moving sustainably in the right direction and the cut is warranted? I think well, I think it will come in June. I think this month is too early. The committee members, only a couple of them as I say Governor Bailey and David Ramsden have recently shifted their position. Do you pill? The chief economist is in a is in a different position where he would prefer to hold interest rates at their current level for a little bit longer. One key thing probably holding the back this month is the minimum wage increase which was pushed through in April. The minimum wage went up 9.8% and the MPC will likely want to see how this passes through into the wage data. The early indications are that this has pushed up wage growth a little bit in the near term. They also probably want to wait for the ECB to move just to guard against any sharp moves in the currency. I mean at this point I think actually the first rate cut is less data dependent then it has been. The rate rises last year were it’s more about the Bank of England avoiding banana skins at this point they don’t, they don’t want to cut rates for the first time and then see three month on three month wage growth accelerate or inflation tick up. You know they want to be absolutely certain that they have a very strong narrative to give immediately after they cut rates. So avoiding banana skins, getting past some upside risks, I think that probably means June is a good date. They could wait till August. It is still a pretty close call between the two, but with the governor pushing pretty hard for this rate cut, I expect it in June.