The governor of the Bank of England has told Sky News he expects the next interest rate move to be a cut.
Andrew Bailey was speaking shortly after the Bank forecast that inflation could ease to its 2% target within a few months.
However, it opted to hold borrowing costs at 5.25% for the fourth time in a row at its latest meeting.
One member of the Bank‘s rate-setting Monetary Policy Committee (MPC) voted for a cut in its base-level interest rate for the first time since the pandemic.
Britain’s central bank signalled that it was now edging closer to reducing the rate, as it dropped language about the potential need for further hikes from the minutes of its meeting and did not push back against widespread expectations that it will begin cutting later this year.
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That was despite continued caution over the outlook for the pace of price increases.
In response to the question whether the next move was more likely to be down rather than up, Mr Bailey replied “Yes… I’ve said a number of times today I think we’ve had good news.”
In a further sign that it is beginning to consider lowering the rate, the nine-member committee was split three ways, with one member, Swati Dhingra, voting for a cut, two members voting for higher rates and the remaining six members favouring a hold.
Advertisement 8:22 Sky News speaks to BoE governorIt is the first time since March 2020 that a member has voted for lower rates, and the first time since March 2008 that the committee was split three ways over whether to raise, lower or hold.
Investors currently anticipate that the Bank will begin cutting rates in the middle of the year, reducing them to just over 3% by 2026.
Read moreThe signs point to interest rate cuts from June – here’s why
The Bank’s forecasts did little to dissuade them that these cuts are coming, though Mr Bailey said the moment had not yet come.
He pointed to the fact that while the consumer price index measure of annual inflation is set to drop to 2% in April, it will later bounce back, mostly due to energy costs.
He said: “Today we’ve decided to hold interest rates at 5.25%. We have had good news on inflation over the past few months. It has fallen a long way, from 10% a year ago to 4%.
“But we need to see more evidence that inflation is set to fall all the way to the 2% target, and stay there, before we can lower interest rates.”
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The Bank upgraded its forecasts for gross domestic product (GDP) growth in the coming years, projecting annual growth rates of 0.5% by early next year (compared with a previous forecast of zero growth), 0.8% by early 2026 (compared with 0.6%) and 1.5% by early 2027.
However, it said that it expected only zero GDP growth in the final quarter of last year – implying (since the previous quarter was a contraction) that there is a near 50:50 chance of the UK facing a technical recession.
The Bank’s economists reckon that around two-thirds of the impact of higher interest rates has now fed through to the wider economy, but more than two million households are still due to see their mortgages refix to higher rates in the coming months.