By David Milliken and Andy Bruce
LONDON, Feb 24 (Reuters) – Bank of England Governor Andrew Bailey said on Tuesday that an interest rate cut in March was a possibility, although services price inflation in recent data – which is closely watched by the central bank – had not fallen as much as hoped.
Bailey told lawmakers he would need further evidence to feel confident about cutting borrowing costs at the bank’s policy announcement on March 19, having voted with a 5-4 majority on the Monetary Policy Committee to hold interest rates this month.
“Well, we’ll see. I think at the moment I would say we’re still a little way off (from) the next meeting…. It is a genuinely open question at the moment,” he told parliament’s Treasury Committee.
Bailey reiterated the BoE’s view that headline inflation was likely to fall sharply to around the central bank’s 2% target in data for April which is due to be published in May.
Consumer price inflation cooled to 3.0% in January, official data showed last week – only slightly above the BoE’s forecast published earlier this month.
But services price inflation, a critical gauge of domestic inflation pressure, was markedly higher than the BoE’s forecast at 4.4% against its projection of 4.1% – something Bailey flagged in his comments to lawmakers.
“Food prices were off a bit more than we expected, but services prices …. didn’t come off as much as we thought they would,” Bailey said. Weaker-than-expected goods price inflation likely reflected more Chinese goods coming to Europe due to the trade war with the United States, he added.
Asked about the U.S. Supreme Court’s ruling that President Donald Trump exceeded his authority by introducing sweeping trade tariffs, Bailey said that was probably not to Britain’s advantage, given it already had relatively low tariffs with the U.S.
The U.S. imposed a new tariff from Tuesday of 10% on all goods not covered by exemptions – matching the existing rate levied on Britain – but the Trump administration was working to increase it to 15%, a White House official said.
BoE Chief Economist Huw Pill, who has said the central bank had cut interest rates too quickly for his liking, reiterated his concern about the strength of underlying price pressures.
“It’s important that we are not beguiled by the achievement of 2% headline CPI inflation. I think there’s an element of us in the past having … given more weight to that than perhaps we should have done,” Pill said.
(Additional reporting by Suban Abdulla; Writing by Andy Bruce; Editing by William Schomberg and Jon Boyle)
Comments