1st Aug 2024 14:43
(Alliance News) - Bank of England Governor Andrew Bailey fell short of saying Thursday's rate cut is a "one and done" event but did not rule out Threadneedle Street lowering bank rate in meetings to come.
A meeting-by-meeting approach was confirmed, though the governor also cautioned on some more stubborn price pressure.
Bailey said monetary policymakers "still face a question" about whether more persistent parts of the inflation calculation are on course to return to target.
The governor said the Monetary Policy Committee, some of its nine-strong team more than others, gave some weight to a "less benign inflation persistence scenario". The scenario would suggest some inflation pressure becomes more embedded.
At its August meeting, the BoE's Monetary Policy Committee voted 5-4 to cut bank rate by 25 basis points to 5.00%. In its previous seven meetings, it had voted to keep bank rate at the 16-year high of 5.25%.
MPC members external member Swati Dhingra and Deputy Governor Dave Ramsden voted once again for a rate cut. This time, they were joined by the bank's Governor Andrew Bailey, and Deputy Governors Sarah Breeden and Clare Lombardelli.
External members Jonathan Haskel, Catherine Mann and Megan Greene and Chief Economist Huw Pill voted to keep rates unchanged. Pill was reappointed to the MPC, the BoE said, a post he will continue to hold until September 2027.
Bailey said the Bank of England is wary about "cutting too much too quickly". When asked by a reporter what he deems too much too soon, Bailey decided against giving a view on the path of bank rate.
The decision to cut on Thursday had been expected by the market. However, confidence that a rate cut would come wavered somewhat following June's inflation data, which showed stubbornly above-target services inflation.
Services inflation stood unchanged at 5.7% in June on-year, which was sharply above the 5.1% the Bank of England had expected. The headline rate returned to the 2% BoE target in May and remained there in June.
Bailey cautioned that services price inflation could pick up this month but ease thereafter.
The cut, despite still lofty service price inflation, is not a sign that the BoE is no longer tracking that measure, Bailey added.
On wages, meanwhile, another measure the BoE closely scrutinises, pay has evolved "largely as forecast", he said.
The BoE governor warned the central bank "should not adjust our course" after every "data surprise", but did say it is still taking a "meeting by meeting" approach.
The BoE believes consumer price inflation will pick up in the second half of the year, hitting 2.8% by December, as declines in energy prices fall out of the calculation.
"CPI inflation then falls back again, to 1.7% in two years' time and to 1.5% in three years," according to the BoE's monetary policy report of economic projections.
"More persistence in domestic wage and price-setting" could present upside risk to inflation, but Bailey did add that a "back of the envelope" calculation suggests a recent public sector pay hikes are unlikely to change the picture much.
Private pay is more of a driver as far as the demand picture goes, he noted, though Bailey did fall short of forming a more certain judgement, preferring to wait for upcoming government budget.
The BoE noted the UK economy grew 0.7% in the first-quarter, and is expected to register the same pace of growth in the second-quarter. This compared to projections of 0.4% and 0.2% in the BoE's May MPR.
"Quarterly GDP growth is expected to fall back to 0.4% in 2024 Q3 and to 0.2% in Q4, broadly consistent with the current signal from surveys," the central bank predicts.
Sterling struggled in the wake of the BoE decision, though its intraday low of USD1.2755, its worst level in about a month, was hit before the rate cut. Around 1430 BST on Thursday, it bought USD1.2798, up from USD1.2771 prior to the decision.
By Eric Cunha, Alliance News news editor
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