The Bank of England may cut interest rates in the coming months, depending on how quickly the knock-on effects on wage and price growth from the 2022 inflation spike subside, Deputy Governor Ben Broadbent said on Monday.
Speaking ahead of his final vote in June as a member of the Monetary Policy Committee, Broadbent cited survey evidence from companies suggesting that the main driver of inflationary pressures, strong wage growth, may be easing slowly. Still, Broadbent said there was reason for optimism as prices were now rising more slowly than wages, helping households recover after being hit by a surge in inflation.
He was content to reduce the persistence of inflationary pressures embedded in the BoE's latest forecast, published earlier this month, he said.
"If things continue to develop with the forecast, the forecast that suggests policy will be less tight at some point then it is possible that the Bank Rate could be reduced in the summer," said Broadbent.
Earlier this month, the BoE MPC voted 7-2 to keep rates unchanged at a 16-year high of 5.25% and Broadbent was one of seven to vote for unchanged policy. He informed that he has different views among the MPC on how much evidence is needed to cut rates.
"The experience of the last two or three years has made people more cautious. Equally, as I said a moment ago, the behavior of the economy over the last six months has been reassuring.”
Broadbent, deputy governor for monetary policy since 2014, will step down at the end of June and will be replaced by former senior finance ministry official Clare Lombardelli.
Broadbent said it would be even more important that Britain maintains the current framework for operational independence for the BoE if shocks to the supply side of Britain's economy become more frequent.
Several politicians in Prime Minister Rishi Sunak's Conservative Party, which is trailing in opinion polls ahead of an election expected before January 2025, criticized the BoE as inflation surged into double digits and its bond-selling program caused heavy losses.
