Bank of England policymaker Dave Ramsden has reinforced the need for a cautious approach to interest rate cuts, citing growing economic uncertainty and the risk of rising inflation.
Speaking in South Africa, Ramsden, who serves as Deputy Governor for Markets and Banking, highlighted the UK’s economic dilemma—persistent inflation alongside sluggish growth.
While the Bank of England reduced interest rates to 4.5% in February, hopes for further cuts have weakened following unexpectedly high inflation figures in recent weeks.
The UK’s core inflation rate climbed from 2.5% in December to 3% in January, raising concerns about price stability.
Ramsden acknowledged that while further rate cuts remain on the table, inflationary risks have increased compared to previous forecasts.
Recent employment data revealed that wage growth reached an eight-month high, with regular pay rising by 5.9% in the three months to December.
Higher wages could fuel inflation, complicating the Bank’s goal of bringing it down to the 2% target. Ramsden admitted that he is now less certain about the outlook for the UK labour market and its potential impact on inflation and economic growth.
Despite inflationary pressures, Ramsden believes that the overall disinflationary trend remains intact. However, he stressed the importance of flexibility, comparing interest rate adjustments to descending a mountain—not always slow, but adaptable to changing conditions.
His comments follow Bank of England Governor Andrew Bailey’s warning earlier in February about the UK’s weak economic growth and the risks posed by global economic fragmentation.
As inflation risks remain unpredictable, the Bank’s approach to monetary policy is likely to be cautious, with potential rate cuts carefully timed to balance economic growth and inflation control.
