2 days Ago By hellenicshippingnews...
Top Bank of England officials said on Tuesday the different possible impacts on inflation from tax increases in the new British government’s first budget represented the biggest doubt around their intention to cut interest rates gradually. The Oct. 30 budget, which raised taxes on employers, represents an increase in the cost of employment, Governor Andrew Bailey said.
He repeated the BoE’s view that it could not yet be sure how that would feed through into consumer prices – whether companies will cut jobs, raise their prices or take a hit to profits. The BoE lowered its benchmark rate to 4.75% from 5% earlier this month but raised its inflation forecasts due in large part to the budget’s measures.
It said at the time that it would move gradually with further cuts. “A gradual approach to removing monetary policy restraint will help us to observe how this plays out, along with other risks to the inflation outlook,” Bailey said in a report ahead of an appearance before parliament’s Treasury Committee. Clare Lombardelli, deputy governor for monetary policy and viewed as a centrist on the committee, told lawmakers she was more worried about the upside risks to price pressures than the downside risks because of the cost if inflation got entrenched.
Economists polled by Reuters expect inflation to break back above the BoE’s 2% target when figures for October are published on Wednesday, and the BoE thinks it will continue rising in the coming months. Catherine Mann, the only Monetary Policy Committee member to vote to keep rates on hold this month, said the tax rises on employers could give companies an opportunity to push through price increases that would undermine the BoE’s drive to return inflation to the 2% target in future years. Alan Taylor, the newest MPC member, said a gradual approach to cutting borrowing costs was in line with recent market pricing for about four quarter-point cuts by the end of 2025.
“But that doesn’t mean to say that’s what will unfold, if conditions are weaker, and in my own view (if the balance is) skewed to the downside risk now versus the upside risk of about a year ago, then we could go faster,” Taylor said. Markets were pricing about four rate cuts by the BoE by the end of 2025 before the government announced its big-spending budget on Oct. 30, but those bets have dwindled to between two or three since the budget and the election of Donald Trump as the next U.
S. president. “The committee uses the ‘gradual’ language – I do not,” Mann said.
Source: Reuters (Writing by Andy Bruce; Editing by William Schomberg and Emelia Sithole-Matarise).
