A rate cut is possible if the economy calls for it, Bank policymaker says | Interest rates

Interest rates may need to start falling again if cost-of-living pressures ease faster than the Bank of England expects, a senior policymaker at Threadneedle Street said.

Dave Ramsden, one of the Bank’s deputy governors, said he currently supported further increases in borrowing costs, but raised the possibility that a weakening economy would require a cut.

“Given the uncertainties we face, it is also important to be humble about what we do not know or have yet to learn. I advocate a careful and responsive approach to setting policy,” Ramsden said.

“While my bias is towards further tightening, if the economy develops differently from my expectations and the persistence of inflation ceases to be a concern, then I will consider cutting Bank Rate as appropriate.”

Ramsden’s comments came as the latest output snapshot from the CBI predicted Britain’s factories were facing a tough winter.

The employers’ lobby group said it expected a rise in output in the three months to be short-lived as both domestic and export order books were below normal for the time of year.

Anna Leach, deputy chief economist at the CBI, said: “The rise in manufacturing output this month appears to be at least partly driven by improvements in supply chains, with several firms reporting that they were able to fulfill orders as materials and parts became more readily available. .

“Total order books remained much weaker than earlier in the year, however, and output is expected to decline again next quarter.”

Threadneedle Street’s monetary policy committee (MPC) has steadily raised interest rates since last December from a record low of 0.1% to 3% and financial markets currently expect the official cost of borrowing to peak at 4.5% .

While Ramsden signaled he would vote to raise rates when the MPC meets again next month, he became the latest member of the committee to highlight the risks that too much policy tightening could lead to a deep recession.

At the November meeting, only seven of the nine MPC members supported a 0.75 percentage point hike, with Silvana Tenreyro and Swati Dhingra voting for smaller increases.

Ramsden said: “I’m not yet convinced that domestic inflationary pressures from increased costs and corporate price pressures are beginning to abate. Encouragingly, survey- and market-based medium-term inflation expectations have eased from their peak, although they remain high.

“Assuming that in the short term the economy is broadly developing in line with the latest MPR [monetary policy report] of forecasts and given my assessment of the balance of risks, then I expect that further increases in the Bank Rate will be required to ensure a sustainable return of inflation to target.

“There remain significant uncertainties around the outlook and if the outlook suggests more persistent inflationary pressures, then I will continue to vote to respond strongly.”

Signs that the U.S. Federal Reserve plans to slow the pace of rate hikes next month weakened the dollar and pushed the pound above $1.20 on Thursday, its highest level in three months.

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