BoE Governor Anticipates Gradual Rate Cuts Next Year

Bank of England (BoE) Governor Andrew Bailey indicated that a series of gradual interest rate cuts is likely to occur throughout the next year, noting that the decline in inflation has firmly taken hold.

In statements made at the Financial Times Global Boardroom event, Bailey emphasized that inflation fell to the Bank's target during the summer months but is expected to rise above the target level thereafter.

Despite the British inflation showing a decline consistent with the Bank of England's 2% target during the summer, a larger-than-anticipated increase was observed in October, pushing inflation rates back above the target. It was noted that core price increases have also accelerated.

Following Bailey's interview, the British pound depreciated against the U.S. dollar. The Bank of England had considered the four interest rate cuts anticipated by financial markets in its latest economic forecasts for the upcoming year.

Bailey explained to companies anticipating these cuts that the Bank's projections are based on current market rates, which indeed suggest four cuts, and he emphasized the term 'gradual' in the Bank's report.

Bailey also addressed the challenges of forecasting inflation in the context of increasing protectionism and the potential rise in trade tariffs should Donald Trump return to the White House. He stated that trade tariffs influence transaction prices, but the overall impact on inflation is complex and dependent on various factors, including the reactions of other countries and the behavior of exchange rates.