The Bank of England must carry out a “long, slow process” of examining whether inflation has fallen rapidly enough before cutting interest rates, a member of its ratesetting committee has said.
Jonathan Haskel, an external member of the monetary policy committee, told the Financial Times that underlying measures of inflation remained too high.
“Although the fall in headline inflation is very good news, it is not informative about what we really care about. What we really care about is the persistent and the underlying inflation,” Haskel, who is also a professor of economics at Imperial College London, said.
He suggested that it would take some time for data to prove that underlying price pressures had cooled enough to bring headline inflation back to the Bank’s official 2 per cent target sustainably. “I think [rate] cuts are a long way off,” he said.
Haskel’s comments are the latest sign of a divergence of opinion within the MPC, which consists of nine ratesetters. Andrew Bailey, the governor of the Bank, said last week that rate cuts were “in play” at each upcoming meeting, while Catherine Mann, another external member of the committee, told Bloomberg this week that financial markets were pricing in too many rate reductions.
Both Mann and Haskel voted to keep interest rates unchanged at the MPC’s meeting this month, having previously voted to raise borrowing costs by 0.25 percentage points for several consecutive meetings.
Bailey, alongside Huw Pill, the Bank’s chief economist, and Ben Broadbent, a deputy governor, voted with the majority to leave rates unchanged. Swati Dhingra, the MPC’s foremost dove, favoured lowering the UK base rate by 0.25 percentage points to 5 per cent.
The Bank has lifted the base rate to a 16-year high of 5.25 per cent to try to tame inflation, which reached a four-decade high of 11.1 per cent in October 2022. It has since slipped to 3.4 per cent, its lowest level since September 2021, and analysts expect it to fall further in the coming months.
