Diverging views emerge on timing of next rate cut
The Bank of England’s outlook for interest rates appears to remain uncertain, as policymakers offered differing views on the direction of monetary policy in light of current economic conditions.
Andrew Bailey (pictured top left), governor of the Bank of England, indicated that further reductions in interest rates could be forthcoming, provided that inflation continues to ease.
Speaking to West Midlands Life, Bailey noted that consumer caution was affecting economic activity. “People are being quite cautious,” Bailey said. “That affects spending so that has an effect on the state of the economy. People aren’t going out as much, they’re not shopping as much, they’re not going out to restaurants as much and so on.”
Sterling fell to a three-week low against the US dollar after Bailey’s comments, with the pound trading just above $1.34. The central bank is currently grappling with inflation at 3.8% and signs of a weakening labour market. While a reduction in rates could stimulate economic growth, maintaining higher rates may be necessary to address persistent inflation.
Bailey emphasised the need to strike a balance between supporting economic activity and achieving the bank’s inflation target. “We have to balance all these things because we want to bring inflation back to target, but obviously want to do that within an economy that has some sustained activity in it,” he said.
However, divisions within the bank’s Monetary Policy Committee (MPC) became apparent when Megan Greene (pictured top right), an external member, advocated for a more cautious approach.
In a speech at the University of Glasgow, Greene argued that the central bank should consider pausing rate cuts at its November meeting. “A more restrictive stance that takes this aversion to policy reversals into account could, in my view, instead mean skipping cuts,” she said.
Greene, who opposed the August rate reduction and supported holding rates steady last week, suggested that the process of disinflation was slowing. She described market expectations for rates to stabilise between 3.25% and 3.5% as “reasonable”.
The Bank of England held rates at 4% last week, having reduced them from 5.25% since August 2024. Market analysts now anticipate little movement in rates for the remainder of the year, with only one quarter-point cut fully priced in for 2026.
For mortgage brokers, the bank’s mixed signals on interest rates mean continued uncertainty for clients. While further rate cuts could lower borrowing costs, policymakers’ caution suggests rates may remain steady in the near term.
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.
