Bank of England governor Andrew Bailey says his monetary policy committee could be a “bit more aggressive” in cutting interest rates later this year.
In an interview in The Guardian Bailey says that the UK economy has proved more resilient than he feared two years ago, or even a year ago.
He is quoted as saying: “I think the economy has come through the shocks of the last five years better than many of us feared. So there’s a base there to develop. The government is right to focus on how to encourage capital investment. There is a clear need for it in terms of infrastructure.
“We’ve got at least three very big structural issues out there. One is the ageing population, which obviously we’re not alone in that one. Two is the demands for increase in defence spending. And the third one is dealing with climate change.”
Inflation as measured by the Consumer Prices Index currently stands at 2.2% – just above its official 2% target – but Bailey told the newspaper that he was encouraged by the fact that cost of living pressures had not been as persistent as the Bank thought they might be.
He said if the news on inflation continued to be good there was a chance of the Bank becoming more “a bit more activist” in its approach to cutting interest rates at its upcoming meetings in November and December.
One issue which may affect timings of future rate cuts was the growing tension and conflict in the Middle East. The possibility of a major lift in oil prices – not seen so far in the period since he Hamas attack on Israel last October – remained a threat to financial stability, warned Bailey.
He also hit back at claims by the former prime minister Liz Truss that the Bank of England was part of a so-called “deep state” that had set out to thwart her plans. Truss’s problems were of her own making, the governor said.
Bailey’s suggestion of a more aggressive approach towards rate cuts appears to have been welcomed by the markets, with Swap rates falling.
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: “A number of lenders are already in the process of repricing – Coventry’s two and five-year fixes which top the best buy tables at 3.89 and 3.69 per cent respectively are being pulled tonight, while HSBC is repricing downwards today and NatWest and Barclays are repricing tomorrow.
“Santander is also repricing tomorrow and is likely to top the ‘best buys’ with its new deals – a two-year purchase option at 3.84 per cent for those borrowing 60 per cent loan-to-value and a five-year fix at 3.68 per cent, also at 60 per cent LTV.
“This ongoing rate war among lenders is great news for borrowers as there are some really compelling deals being launched, which will go some way to helping affordability.”
