Published On: Thu, Apr 11th, 2024

Grim interest rates warning issued from Bank of England MPC member | Personal Finance | Finance

A Bank of England expert has crushed hopes of an early interest rate cut to help home buyers and those struggling with debt.

A member of the Bank’s Monetary Policy Committee (MPC) which sets the interest base rate says any cut “should still be way off”.

High interest rates in the UK – the current base rate is set at 5.25 percent – have been blamed for a rise in home loan arrears and bankruptcies.

At the same time, it has driven many buy to let landlords to put up rents or sell their properties.

Megan Greene, one of the more hawkish members of the BoE’s monetary policy committee, told the Financial Times that any cuts in the UK will come after interest rates have been cut in America by the US Federal Reserve.

And any hopes of a rate cut on the other side of the Atlantic have been set back by evidence that inflation remains above target.

She said there are conditions specific to the UK which mean inflation will remain above the 2 percent target, so making interest rate cuts here more difficult.

These, she said, are a “double whammy” of a very tight labour market, which means potentially inflationary wage rises, and a far bigger energy price shock.

As a result, she said that “inflation persistence” is a greater threat than in the US or other advanced economies.

She said market expectations of early rate cuts are wrong, adding: “In my view, rate cuts in the UK should still be a way off as well.”

Last month, Greene voted with most of the members to leave the BoE’s benchmark rate at a 16-year high of 5.25 percent.

Her comments echo those of Jonathan Haskel, another MPC hawk, who cautioned in a recent interview with the FT that interest rate cuts should be “a long way off”.

UK consumer price inflation fell to 3.4 per cent in February, its lowest level since 2021, and big declines in household energy bills will drag it down further in the near term.

But the BoE’s latest forecasts suggest this drop will be temporary, with domestic price pressures pushing headline CPI back above the central bank’s 2 per cent target for much of the next two to three years.

Both Haskel and Greene argue that UK wage growth and services inflation remain too high for comfort, despite recent signs that pressures in the labour market are finally easing.

However, other BoE rate-setters have offered a more upbeat view.

The views of Greene and Haskel are at odds with the Bank’s governor, Andrew Bailey, who just last month said rate cuts were “in play” at future MPC meetings.

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