Sir Charlie believes financial markets have gotten ahead of themselves with bets on interest rate cuts, although he believes the next move is more likely to be bearish rather than bullish.
“Obviously it depends on what happens to the data. But I personally think that any interest rate cuts will be more likely in the second half of the year than in the first half.
Saunders, who served on the bank’s monetary policy committee between 2016 and 2022, believes policymakers should resist talk of interest rate cuts too early.
He believes the challenge for the bank will be to deliver a louder message for longer while recognizing that interest rates are likely to fall this year.
“They have shifted away from a last-mile narrative to something about focusing on whether inflation will sustainably return to target,” he says.
“The car driver analogy is an old favorite of central bankers. Foot firmly on the brake for now.
“You can ease off the brakes, but it’s not the same as putting your foot on the gas.”
History tells us that signals matter when it comes to interest rates.
Since the establishment of the Monetary Policy Committee in 1997, there have been 14 changes in the direction of the bank rate. “In the run-up to as many as 13 of these turning points, one or more MPC members jumped in, and the majority followed in four or fewer meetings,” says Joe Maher of Capital Economics.
“On average, the first MPC member attends two meetings before the majority.” HSBC believes Swati Dhingra, the most pessimistic member of the Monetary Policy Committee, will start voting for a rate cut this month.
You have voted to keep interest rates unchanged since they reached 3%.
However, Dhingra has been warning for months about “the dangers of too much policy tightening [have] Keep building.”
Maher says the current disagreement over the MPC is the largest it has ever been, with the number of dissenting voices greater and more frequent in the past 12 meetings than ever before.
In fact, there has been no unanimous MPC decision on interest rates since September 2021.
The risks of cutting too quickly or too slowly are well balanced, says Martin Weil, who served on the Monetary Policy Committee between 2010 and 2016.
He adds: “It is possible that there will be interest rate cuts this year. It is possible that one of them will come in May, but I am not saying that this is a certainty.”
“The main goal of the Monetary Policy Committee is inflation. That’s what the Chancellor’s instructions say. If I were still a member of the committee, I would have paid attention to that.”