The Bank of England warns that interest rate cuts are still a long way off
A senior Bank of England official warned yesterday that a rate cut was “still some way off”.
In a blow to millions of families with mortgages, the central bank’s chief economist, Hugh Bell, said there was not yet “sufficient evidence” to reduce borrowing costs.
Meanwhile, “astonishing” job numbers in the US dampened expectations of interest rate cuts on the other side of the Atlantic.
Bond yields – a key measure of the cost of borrowing in financial markets – rose amid a major reassessment of when to cut interest rates. The bank again kept UK interest rates at their highest level in almost 16 years at 5.25 percent on Thursday.
For a long time, it was hoped that the first cut would come this spring.
Blow: Investors now expect interest rates to be cut to just 4.5 per cent by December – and could remain unchanged until the summer
At the beginning of the year, markets were expecting interest rates to fall to 3.75 percent by the end of 2024.
But investors now expect interest rates to be cut to just 4.5 per cent by December – and could remain unchanged until the summer.
In the United States – where interest rates were fixed this week between 5.25 percent and 5.5 percent by the country’s central bank, the Federal Reserve – official figures showed that 353,000 jobs were created last month.
This was much more than expected and raised concerns that an early US interest rate cut would be less likely.
“The important thing, for me at least, is that we don’t have enough evidence yet,” Bell said when referring to UK interest rates.
“Therefore, the moment when a reduction in bank interest rates may be possible is still a long way off.”
But although interest rates are expected to remain high for some time, Bell said that does not mean they will not change.
“The need for the restriction does not mean that the bank interest rate should remain at its current level indefinitely,” he said.
On Thursday, Bank Governor Andrew Bailey said UK inflation was “moving in the right direction” as he scrapped language suggesting interest rates could continue to rise.
Economists are divided in three directions on the path forward for interest rates – the biggest split in 16 years. Of the nine members who set interest rates, six – including Bell – voted to keep them on hold, two voted to raise rates and one voted to cut.
Tom Simons, an economist at brokerage Jefferies, described the US jobs numbers as “astonishing” and said a March interest rate cut by the Federal Reserve was “out of the question”.
(tags for translation) Daily Mail