Andrew Bailey, Governor of the Bank of England, at the central bank's headquarters in the City of London, Britain on November 29, 2024.
Hollie Adams | Bloomberg | Getty Images
Bank of England Governor Andrew Bailey signaled on Wednesday that the UK could be on track for four interest rate cuts next year if inflation continues to fall.
In a video interview with the Financial Times, she was asked whether the central bank would be willing to make four quarter-percentage-point interest rate cuts next year if her forecasts were “something.” [inflation] “Persistence” came into play, Bailey replied, “Exactly.”
According to LSEG data, markets are currently pricing in a rate hold at the Bank of England's December meeting, followed by three rate cuts of 25 basis points each. If all four rate cuts are implemented, they would bring the bank's key interest rate down to around 3.75%, adding to the BoE's two cuts so far this year. The institution began cutting rates in the summer, with Bailey telling reporters in November that the bank needed to take a “gradual” approach to cutting rates.
“Monetary policy must remain restrictive until the risks to a medium-term sustainable return of inflation to the 2 percent target have further disappeared,” he said at the time.
Looking at the inflation situation, the BoE governor added on Wednesday that consumer prices had fallen faster than the central bank expected.
“A year ago we said that inflation today would be about 1% higher than it actually is,” he said during the interview. “And I think this is a good test for that [central banking] Regime.”
UK inflation surprised markets with a significantly better-than-expected rise of 2.3% in October, compared to 1.7% in September.
Sterling was flat on Wednesday morning, hitting $1.2671 at 11:52 a.m., erasing some of its earlier losses.
Meanwhile, the UK 10-year government bond yield remained unchanged at around 4.273%.
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