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Sir Dave Ramsden, the Bank of England’s deputy governor overseeing markets, has indicated that inflation is expected to stabilise at 2% in 2024, potentially signalling the possibility of interest rate cuts.
His remarks diverge from the Bank’s previous forecasts, suggesting a potential revision in the inflation outlook set to be released next month. Ramsden’s comments come amidst signs of easing inflationary pressures, particularly driven by a slowdown in the labor market.
Ramsden expressed increased confidence in the evidence suggesting a reduction in domestic inflationary pressures, citing improved inflation dynamics. He highlighted a scenario where inflation remains close to the Bank’s 2% target throughout the forecast period. This optimism is supported by indicators such as a slowdown in wage growth and a decline in job vacancies to pre-pandemic levels.
Despite Ramsden’s optimism, the Bank’s monetary policy committee (MPC) maintained the base interest rate at 5.25%, with eight out of nine members voting in favor of stability. However, Ramsden’s remarks indicate a potential shift within the committee towards supporting rate cuts, marking a departure from the stance adopted since 2020.
Ramsden’s views on receding inflation may lead to divisions within the MPC, particularly between permanent and external members. While Ramsden suggests a favorable environment for rate cuts, some external members, including Megan Greene, remain cautious due to persistent wage pressures.
Andrew Bailey, the governor of the Bank of England, echoed Ramsden’s sentiment regarding falling inflation, noting that geopolitical tensions, particularly in the Middle East, have not significantly impacted oil prices as initially feared.
Market expectations for monetary loosening have moderated, with forecasts now projecting only one or two rate cuts this year, compared to earlier predictions of up to five cuts. This shift in expectations follows data indicating stubbornly high inflation in the United States, prompting reassessment of global monetary policy trajectories.
As discussions unfold at the International Monetary Fund’s spring meetings, officials have emphasized the need for the incoming UK government to address the country’s debt burden through spending cuts and tax adjustments.
