12th May 2025 12:10
(Alliance News) - A deputy governor of the Bank of England has said "caution remains appropriate" in fiscal policy decisions despite a slowdown in UK inflation in recent months.
Wages are still growing too fast for inflation to sustainably come down to the 2% target, said Clare Lombardelli, deputy governor for monetary policy.
She also warned that global growth will be knocked by US tariff plans, which will also reduce inflation.
Last week, Lombardelli was among members of the bank's Monetary Policy Committee who agreed to reduce UK interest rates to 4.25% – the lowest level for two years.
The bank also increased its economic growth forecast for 2025 after a strong start to the year, but downgraded growth prospects for next year.
On Monday, the deputy governor told the Bank of England Watchers Conference in London that she was "balanced between holding and cutting rates" but ultimately supported a cut amid "gradual disinflation".
Most recent official figures showed that UK consumer price inflation slowed to 2.6% in March, from 2.8% in February, bringing it closer to the government and the bank's 2% target rate.
However, inflation is expected to have accelerated to around 3.4% in April after a jump in energy and utility costs.
Recent data also showed that average weekly pay grew by 5.9% over the three months to February.
Lombardelli said: "Monetary policy is still restrictive and the current stance reflects a balance between the need to continue to squeeze out underlying inflationary pressure and managing the risks of lower demand in the economy.
"Wage growth is still too high to be consistent with inflation at target.
"Caution remains appropriate. I'll be more comfortable when I see material deceleration in the data over a longer period."
She added that recent US tariff plans and heightened trade tensions globally could press UK inflation lower.
Lombardelli said: "Higher tariffs and more uncertain US policies will likely reduce growth and inflation over the policy-relevant horizon because of reduced demand and trade diversion from reduced exports by the rest of the world to the US.
"The exchange rate movements we have seen further support lower imported inflation to the UK, although exchange rates can shift in response to trade policy news and the evolution of global risk sentiment."
By Henry Saker-Clark, PA Deputy Business Editor
source: PA
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