LONDON (Reuters) -Bank of England policymaker Megan Greene said on Monday that interest rates would probably fall further but there were risks that the broad weakening of inflation pressures in Britain might be slowing.
“I think that our monetary policy stance is still restrictive, and so I do think that Bank Rate is still on a downward path,” Greene said during a speech at the Society of Professional Economists’ annual conference.
“But it’s less restrictive than it had been, and that’s a concern if you consider that inflation has been ticking up for the past year,” she said.
British consumer price inflation was 3.8% in August – well above the BoE’s 2% target and the highest among the Group of Seven economies – and the BoE expects it to peak at 4% in September.
Greene voted last month along with most of the BoE’s Monetary Policy Committee members to keep the central bank’s benchmark Bank Rate at 4%. In August she opposed a quarter-point cut that was approved in a narrow 5-4 decision.
Investors are fully pricing the next reduction in borrowing costs only in April next year.
BoE Governor Andrew Bailey has said he expects rates to be cut again but when and by how much depends on inflation pressures in the economy.
Greene said Britain’s disinflationary process was “still intact” but she was worried that inflation might be slow to fall. She also said she was worried about the pace of productivity growth in Britain.
While the BoE’s central view was that productivity growth would recover to its historical trend over the next couple of years, “I think the risk there is entirely on the downside. I’m more sceptical of that assumption,” Greene said.
Many economists expect a downgrade next month of the official productivity and growth forecasts that underpin UK finance minister Rachel Reeves’ annual budget, adding to the pressure for tax increases.
(Reporting by William Schomberg, Writing by Suban AbdullaEditing by Ros Russell)
Comments