Bank of England Deputy Governor Signals Rate Cut Strategy Could Vary Between Very Slow and Very Quick

The Bank of England’s approach to interest rate cuts could fluctuate dramatically between a very gradual or swift pace as it navigates significant economic uncertainties, according to Deputy Governor Sir Dave Ramsden.

Speaking in South Africa, the monetary policy committee member highlighted the complex challenges facing ratesetters as they analyse the impacts of tariffs, fiscal policy shifts, and labour market developments on growth and inflation trajectories.

The central bank has already implemented three rate reductions since August, bringing the base rate to 4.5%. Market expectations currently point to two additional quarter-point cuts this year, anticipated in March and July, following the MPC’s recent commitment to a “gradual and careful” approach to monetary easing.

Drawing on his mountain climbing experience, Sir Dave emphasised that while careful descent is crucial, the pace might need to adapt to circumstances. “A gradual and careful approach is always needed on the way down a mountain to ensure a safe descent and a successful outcome, but that doesn’t always mean the descent has to be slow,” he explained.

The imminent increase in national insurance contributions for employers from April presents a significant concern, potentially dampening employment more than initially projected. Simultaneously, the introduction of the national living wage could maintain wage pressures, creating a complex balancing act for monetary policy decisions.

Trade policy uncertainty has emerged as an additional complication, with the Bank lacking concrete information about potential US tariffs on UK goods. While the Trump administration has announced a 25% tax on European Union imports, the UK’s position remains unclear, though it faces inclusion in a 25% tariff on imported steel.