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Bank of England’s Greene says rate cuts should be “a way off”
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(Reuters) -Bank of England policymaker Megan Greene said interest rate cuts in Britain should remain “a way off” because of the persistence of inflation pressure, which is still more of a threat than in the United States.
Greene said that markets were wrong to expect that the British central bank would cut rates earlier and by more than the Federal Reserve this year, arguing that a later start to policy easing would be better.
“In my view, rate cuts in the UK should still be a way off as well,” Greene wrote in a column published in the Financial Times.
Greene’s remarks contrasted with those made recently by BoE Governor Andrew Bailey, who has talked openly about the prospect of rate cuts this year, describing expectations for this as “not unreasonable”.
Jonathan Haskel, one of the Monetary Policy Committee’s (MPC) most hawkish members, has said that rate cuts should be “a long way off.”
The next policy decision by the MPC is due on May 9.
“Following surprisingly strong U.S. March CPI inflation, markets now expect the Bank of England will cut rates earlier and by more than the Federal Reserve this year,” Greene said.
“The markets are moving rate cut bets in the wrong direction,” Greene, a U.S. economist who joined the MPC last July, added.
In the article titled “Markets must stop comparing the UK and the U.S.”, Greene said the persistence of inflation is a greater threat for Britain than the U.S.
Money markets expect around 45 basis points of interest rate cuts by the BoE this year and the first rate cut is fully priced in for August, according to LSEG data.
That is more than the 42 bps of U.S. rate cuts priced in by investors, who pared bets on the Fed loosening policy after hotter-than-expected U.S. inflation data on Wednesday.
Greene said that the difference in labour supply between the two countries is also stark and British services inflation remains much higher than in the United States.
“Overall labour market participation in the UK has not recovered to the pre-pandemic trend. Participation in the U.S., on the other hand, has exceeded the pre-COVID trend.”
British annual consumer price inflation slowed in February to 3.4% and it is expected to fall below the BoE’s 2% target in the April-June period before rising slightly again.
(Reporting by Mrinmay Dey in Bengaluru; Editing by Kim Coghill, Shri Navaratnam and Miral Fahmy)
Monetary policy refers to the actions taken by a central bank to manage the money supply and interest rates to achieve macroeconomic objectives such as controlling inflation, consumption, growth, and liquidity.
Interest rates are the cost of borrowing money or the return on savings, expressed as a percentage of the principal amount. They are influenced by central bank policies and market conditions.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured by the Consumer Price Index (CPI).
Financial markets are platforms where buyers and sellers engage in the trade of assets such as stocks, bonds, currencies, and derivatives, facilitating the flow of capital and investment.
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