Bank of England governor Andrew Bailey said there was room for the central bank to become a “bit more aggressive” on interest rates provided inflation continued to move in the right direction.
Bailey spoke in an interview with the Guardian ahead of the next Monetary Policy Committee meeting in November and as the Middle East crisis deepens.
His comments are a shift from an interview the Bank governor gave to the Kent Messenger two weeks ago when he said he expected rates to come down “gradually”.
In today’s interview, Bailey also dealt with growing unrest in the Middle East.
He said: “Geopolitical concerns are very serious. From the point of view of monetary policy, it’s a big help we haven’t had to deal with a big increase in the oil price.
“But obviously we’ve had that experience in the past, and in the 1970s, the oil price was a big part of the story.
“Obviously, we keep watching it. We watch it extremely closely to see the impact of the latest news. But … my sense from all the conversations I have with counterparts in the region, is that there is, for the moment, a strong commitment to keep the market stable.
“There’s also recognition there’s a point beyond which that control could break down if things got really bad. You have to continuously watch this thing, because it could go wrong.”
University of Liverpool professor Costas Milas adds: “Andrew Bailey, and rightly so, notes that the Bank’s Monetary Policy Committee might cut more aggressively if the news on inflation continues to be good.
“But this is a given. So, why his comments now? It is not a coincidence that Bailey’s comments coincide with geopolitical risk, fuelled by tensions between Israel and Iran, being on the rise.”
Money markets now price in a cut in Bank rate next month to 4.75% at a 96.5% chance.
Last month, the Monetary Policy Committee voted to hold bank rate at 5%, following a 0.25% cut in August. Its first reduction in four years.
Inflation came in at 2.2% in August, unchanged from July, just above the BoE’s 2% target.
Despite the Bank’s hold last month, central banks in the West have begun easing rates to stimulate economies as inflation eases.
The US Federal Reserve lowered interest rates in September for the first time since July 2023 with a bigger than usual cut of 0.5%, to a range of 4.75%-5%.
In June, the European Central Bank cut interest rates for the first time by 0.25% to 3.75% since September 2019 — beating the Bank of England and the US Federal Reserve to ease borrowing costs in its region.
