Bank of England policymakers must exercise caution, much like mountaineers, as they continue to cut interest rates in the coming months amidst rising inflation risks, according to Dave Ramsden, the central bank’s deputy governor.
In a recent speech at Stellenbosch University in South Africa, Ramsden, a seasoned climber himself, used the analogy of mountain climbing previously employed by the Bank’s chief economist, Huw Pill, to describe the path of interest rates. He emphasized that while a gradual and careful approach is necessary for a safe descent and successful outcome, it does not imply that the descent must always be slow.
Ramsden acknowledged that there may be instances where a slower-than-expected descent is justified, but also situations where conditions require a quickening of the pace. Despite the Bank’s recent rate cut by a quarter point to 4.5% and its indication of further reductions in borrowing costs, Ramsden addressed the heightened uncertainty faced by policymakers, especially regarding inflation risks.
Initially, Ramsden supported a quarter point interest rate cut in December, fearing a rapidly cooling jobs market and potential undershoot in inflation. However, with the Bank now expecting a rise in inflation to 3.7% later this year and stronger-than-expected wage growth, he now believes the risks are balanced.
Ramsden also highlighted uncertainties surrounding the jobs market, with concerns about a potential rapid downturn as a result of the government’s increase in employer national insurance contributions in April. However, there are also concerns about recent stronger-than-expected wage data.
Furthermore, Ramsden pointed to risks associated with trade policies, particularly Washington’s threats of imposing tariffs on multiple countries. He emphasized the significance of these risks given the UK’s relatively small open economy.
While markets expect the Bank of England to maintain interest rates at its next policy meeting in May, they have factored in two further cuts this year, which would bring down the Bank rate to 4%.
Source: https://www.theguardian.com/business/2025/feb/28/bank-of-england-must-proceed-with-caution-over-future-rate-cuts-says-deputy-governor
