Bank of England rate-setter Haskel: Interest rate cuts are still ‘a long way off’
Interest rate cuts are still “a long way off” as policymakers look for further progress on underlying inflation, according to one of the Bank of England’s rate-setters.
Jonathan Haskel, an external member of the Monetary Policy Committee (MPC), admitted that there had been progress on headline inflation, but suggested he was still concerned about cost pressures.
“Although the fall in headline inflation is very good news, it is not informative about what we really care about: what we really care about is the persistent and the underlying inflation,” Haskel told the FT.
“I think cuts are a long way off,” he added.
Haskel has long been one of the Bank of England’s most hawkish members and was voting to increase interest rates further as recently as February.
His decision to back a hold last week alongside fellow hawk Catherine Mann prompted markets to think that the Bank was preparing to cut rates.
Haskel clarified that he changed his vote because of progress on a few key indicators against the Bank’s most recent forecasts.
In February, inflation fell to 3.4 per cent, down from four per cent in January and slightly below market expectations.
Services inflation eased to 6.1 compared to a previous reading of 6.5 per cent. Services inflation, which is heavily influenced by wage growth, is seen as a key gauge of domestic inflationary pressures.
However, Haskel cautioned that the Bank should take its time before cutting rates, preferring to take a “gradualist approach”.
“There is a big question in monetary policy generally – is one an activist or a gradualist,” he said. “When inflation was 11 per cent I was in the activist camp”
“We are not in that world anymore…I’m very much in the gradual camp,” he said. “This is a long slow process.”
His comments echo those of Mann, who told Bloomberg earlier this week that markets were still pricing in “too many cuts” this year.
The Bank voted to leave interest rates on hold for the fifth consecutive meeting last week. Although eight out of the nine members of the MPC backed a hold, minutes from the meeting revealed substantial disagreement about the timing of the first cut.
Comments from Andrew Bailey following the decision suggest that he is more comfortable with cutting rates than Mann. “What we are seeing is encouraging to me,” he said.
Markets have fully priced in an August rate cut, but think it is more likely than not that the Bank will start cutting rates in June.