Renewed hopes of June interest rate cut after Andrew Bailey hint

Hopes are rising of a cut to interest rates sooner rather than later after the Governor of the Bank of England hinted of a first cut to borrowing costs since 2020.

Economists have suggested that a cut in the Bank’s base rate was now expected after Andrew Bailey used an interview to say a rate cut is now “in play” after the BoE’s monetary policy committee voted this week to hold interest rates for another month.

The shift in tone from the Governor has prompted some industry figures to claim that a cut could come as early as May, although the working expectation is that the first fall will be in June.

In an interview with the Financial Times, Mr Bailey suggested rate cuts would now be on the table in the next MPC meetings in the wake of inflation falling to 3.4 per cent in February.

While he refused to say when and by how much interest rates could be cut, the fact the head of the BoE is talking about it as a possibility has been seized upon by economists.

“The fact that we have a curve that has cuts in it for the year as a whole is not unreasonable to me,” he told the FT. Asked whether future MPC meetings would hold live discussions on policy moves, he added: “All our meetings are in play. We take a fresh decision every time.”

It comes as the BoE Governor has come under sustained criticism from Tory MPs, who are demanding he and his committee act more swiftly to bring down the cost of borrowing.

Deutsche Bank is now viewing it as a significant shift in stance, stating: “We see a May rate cut as 50/50. In our view, the MPC has indeed opened the door for rate cut in May. The debate around rate cuts, we think, is firming.”

Paul Dales, UK chief economist at Capital Economics echoed the assessment, telling i: “I’m taking it as a sign that the Bank is getting closer to rate cuts.

He added: “It appears that Bailey is gaining enough confidence that all measures of inflation are moving in the right direction and that would be enough to cut rates.”

But there were doubts that the more optimistic noises coming from the BoE would result in a cut to rates as soon as May, with June still being seen as the most viable outcome.

Willem Buiter, former external member of the MPC: “There is no doubt that the latest inflation figures were a pleasant surprise, with headline CPI inflation down to 3.4 per cent in February 2024, from 4 per cent in January.

“Does this mean that the Bank rate will be cut at the May MPC meeting? Unlikely, I would say, unless there are further comparable surprises before 9 May.

He added: “May would be a surprise, and most likely a mistake.”

Edward Jones, economist at Bangor University, said: “There is no longer any discussion on increasing rates and I suspect we will see more MPC members voting for cuts soon. However, I’m unsure that we will see a cut in May. The BoE will want to be certain the battle against inflation has been won.”