Inflation Concerns Remain as Bank of England Member Argues Against Interest Rate Cut
The possibility of an interest rate cut this summer has been called into question by a member of the Bank of England’s rate-setting committee. In a speech to be delivered at King’s College London on Monday, Jonathan Haskel stated his belief that interest rates should remain unchanged due to ongoing inflation pressures in the job market.
According to a document released by the Bank, Haskel will declare, “The labor market continues to be tight, and I worry it is still impaired. I would rather hold rates until there is more certainty that underlying inflationary pressures have subsided sustainably.”
Haskel is considered the leading hawk on the nine-member monetary policy committee (MPC). A “hawk” is defined as a member who is more likely to take action to combat inflation, while “doves” are more inclined to support lower interest rates. Haskel had previously been among those arguing for an increase in the Bank rate from its current level of 5.25%, until February of this year.
His stance on caution ahead of the upcoming rate decision on August 1st goes against the expectations of financial markets and many economists. As of Monday, LSEG data showed that 60% of bets were in favor of a rate cut to 5%.
Haskel’s term on the MPC is set to end at the conclusion of the August meeting, making it his last as a member. His nominated successor has yet to be announced. As an external member of the MPC, the appointment falls under the responsibility of the new Chancellor, Rachel Reeves. With a focus on promoting economic growth, she may be inclined to choose a more dovish figure.
A rate cut, following seven consecutive decisions to hold, would provide relief for businesses and consumers who have been affected by rising borrowing costs in the fight against inflation. While the consumer prices index (CPI) measure of inflation returned to the Bank’s 2% target last month, basic wage growth remains at 6%, double the rate typically deemed consistent with 2% inflation. Additionally, services inflation remains stubbornly high.
Bank governor Andrew Bailey has stressed the need for inflation to be sustainably close to the target before the Bank takes action. Projections by Bank staff anticipate an increase in CPI in the latter half of the year. Bailey has also stated that progress has been made in addressing inflation, and the next move for the Bank rate will likely be downward, barring any further inflation shocks.
The MPC’s August meeting will be preceded by one more set of employment and inflation figures.
