Homeowners' hopes of interest rate cut soon dealt blow with warning it's 'a way off'
Homeowners' hopes of the Bank of England cutting interest rates soon were dealt a blow with a warning that it's 'a way off'.
Megan Greene, who sits on the Bank’s Monetary Policy Committee, argued that interest rate cuts in Britain should remain "a way off" because of the persistence of inflation pressure, which is still more of a threat than in the United States, as the UK emerges from recession.
She believes markets are wrong to expect that the British central bank would cut rates earlier and by more than the Federal Reserve this year, arguing that a later start to policy easing would be better.
"In my view, rate cuts in the UK should still be a way off as well," Ms Greene wrote in a column published in the Financial Times.
Her remarks contrasted with those made recently by BoE Governor Andrew Bailey, who has talked openly about the prospect of rate cuts this year, describing expectations for this as "not unreasonable".
Jonathan Haskel, one of the MPC’s most hawkish members, has said that rate cuts should be "a long way off."
Homeowners saw mortgage bills soar as the Bank of England raised interest rates to control spiralling inflation, sparked higher by Vladimir Putin’s Ukraine war, with rents also rising in London and other parts of the country.
The next policy decision by the MPC is due on May 9.
"Following surprisingly strong US March CPI inflation, markets now expect the Bank of England will cut rates earlier and by more than the Federal Reserve this year," Ms Greene added.
"The markets are moving rate cut bets in the wrong direction," Ms Greene, a US economist who joined the MPC last July, added.
In the article titled "Markets must stop comparing the UK and the US", Ms Greene said the persistence of inflation is a greater threat for the UK than America.
Money markets expect around 0.45 percentage points of interest rate cuts by the BoE this year and the first rate cut is fully priced in for August, according to LSEG data.
That is more than the 0.42 percentage points of US rate cuts priced in by investors, who pared bets on the Fed loosening policy after hotter-than-expected US inflation data on Wednesday.
Ms Greene said that the difference in labour supply between the two countries is also stark and British services inflation remains much higher than in the United States.
"Overall labour market participation in the UK has not recovered to the pre-pandemic trend. Participation in the US, on the other hand, has exceeded the pre-COVID trend,” she explained.
British consumer price inflation slowed in February to 3.4 per cent and it is expected to fall below the BoE's two per cent target in the April-June period before rising slightly again.
