UK inflation could undershoot forecasts, requiring faster rate cuts, BoE’s Ramsden says
2024.11.20 12:27
By David Milliken
LONDON (Reuters) – British inflation is at least as likely to undershoot the Bank of England’s latest forecasts as it is to match them, potentially requiring faster rate cuts, Deputy Governor Dave Ramsden said on Wednesday.
Ramsden voted for the BoE to start cutting rates in May – three months before a majority on the Monetary Policy Committee backed loosening policy – and joined the majority earlier this month who backed a second quarter-point rate cut to 4.75%.
At the time of November’s rate cut, the central bank revised up its inflation forecasts – partly because of stimulus in the new Labour government’s first budget – and forecast inflation would mostly stay above its 2% target until early 2027.
Ramsden said this outturn was “plausible” but that he put at least as high a weight on a scenario under which inflation fell faster “consistent with more symmetry in wages and price setting, with less domestic inflationary pressure”.
Employers next year were likely to raise annual pay settlements by an amount in the bottom half of a 2-4% range which they had reported to BoE staff, Ramsden predicted.
“This would imply a scenario in which inflation stays closer to the 2% target throughout the first part of the forecast and falls below 2% more materially later on, lower than in the MPC’s published forecasts,” he said in a speech at the University of Leeds.
Given the uncertain outlook, Ramsden said he would take a “watchful and responsive” approach.
“Were those uncertainties to diminish and the evidence to point more clearly to further disinflationary pressures … then I would consider a less gradual approach to reducing Bank Rate to be warranted,” he added.
The BoE’s central forecasts this month were based on market expectations of interest rates falling to 3.75% by late 2025. Markets now only see two or three BoE rate cuts next year.
