A file photo of the Bank of England (BoE) building in London, Britain.
London: At this year’s Jackson Hole Economic Symposium, the Bank of England (BoE) Governor adopted a “cautiously optimistic” tone about inflation in the United Kingdom (UK), suggesting a potential interest rate cut later this year while acknowledging ongoing inflationary pressures.
Speaking on Friday at the global central bankers’ conference in Jackson Hole, the US state of Wyoming, Andrew Bailey, the UK’s central bank chief, said there is evidence that the BoE’s monetary policies may be working, with inflation showing less persistence than anticipated a year ago.
However, Bailey also pointed out that inflation has not yet returned to the bank’s target on a “sustained basis,” and he emphasised that future policies will need to remain restrictive for a sufficient period to ensure that inflation risks are kept close to the bank’s 2-percent target.
On Aug. 1, the BoE’s Monetary Policy Committee voted by a narrow 5-4 margin to cut the interest rate by 0.25 percentage point to 5 percent, marking the first rate reduction in four years, following the decline of the UK’s headline inflation rate to 2 percent in May.
Bailey emphasised that the disinflation process is “steady and more in line with a soft landing than a recession-driven process,” suggesting that the economic costs of reducing inflation, such as impacts on output and employment, might be lower than feared.
“I’d describe this as a fairly positive outlook on the path for inflation,” said Professor Iain Begg from the London School of Economics and Political Science.
“Bailey acknowledges the tough decisions and trade-offs policymakers face, but he believes they’ve navigated these challenges well and are now on course for a more normalized monetary policy.”
Begg told Xinhua that inflation has already dropped to the 2 percent target, placing the UK in a position similar to the Eurozone, where the European Central Bank has also started to reduce interest rates.
“Even the Federal Reserve is getting ready to lower interest rates, despite having higher inflation rates but also stronger economic growth than its European counterparts,” Begg added.
However, Begg noted it is unlikely the central bank will revert to the quantitative easing measures that were in place before the pandemic, which kept interest rates extremely low.
“Over the next three to four years, we should expect inflation and interest rates to settle at more typical levels, providing a positive return on savings rather than a near-zero interest rate,” Begg said.
