LONDON, Nov 9 (Reuters) – Bank of England chief economist Hugh Bell said on Thursday that it was essential that interest rates remain at their current level in order to curb inflation, a shift in tone from earlier in the week when he discussed potential cuts. . Next year.
Last week, the Bank of England kept its key interest rate at 5.25% and said interest rates should remain at that level for an extended period, but Bell said on Monday that market prices pointing to a first rate cut in August 2024 “do not look unreasonable at all.” “Launching.” “.
British consumer price inflation was the highest among major advanced economies in September at 6.7%, and although the Bank of England expects a significant decline in October data next week, it expects it will take another two years for it to return to its 2% target.
“We seem to have determination there,” Bell said in a presentation to the Institute of Chartered Accountants in England and Wales (ICAEW).
“This is what makes it so important, for me, that the restrictive stance of monetary policy, as reflected in the bank interest rate at 5.25%, and that this restrictive response must also be sustained, in order to take the inflationary situation out of the system,” he added.
Although growth has slowed over the past three months, some domestic inflation pressures such as rapid growth in private sector wages have yet to subside, raising concerns about the medium-term inflation outlook, Bell said.
Bell said he did not believe further rate hikes were necessary, but noted that the Bank of England’s expectations for inflation to return to target were based on market prices in the run-up to last week’s decision that interest rates would remain high.
These forecasts assumed an average interest rate of 5.1% in the fourth quarter of 2023 – suggesting a possible quarter-point cut at that time – and interest rates at 4.5% in late 2025.
Following Bell’s comments on Monday, yields on two-year interest rate-sensitive government bonds fell sharply to a five-month low and interest rate futures were priced at a greater than 50% chance of a rate cut by June 2024, with interest rates falling to 4.75% by the end. . From next year.
Bank of England Governor Andrew Bailey confirmed on Wednesday that it was too early to make a decision on cutting interest rates.
Two-year government bond yields rose with pill talk on Thursday and interest rate futures lowered their pricing in a June rate cut, although they are still pricing in at least two quarter-point cuts for next year.
Bell also said it was a mistake to view the central bank’s comments on monetary policy forecasts as expressing firm commitments, rather than plausible scenarios.
“There is no promise here and we are responding to events. Events in the Middle East are a clear focus of attention at the moment for reasons that I think are clear,” he said.
Writing by David Milliken. Edited by William James and Alex Richardson
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