Boe's Bailey Sticks With 'Careful' Rate Cut View as Uncertainty Deepens

• Bank of England Governor Andrew Bailey said on Tuesday he was sticking with a "gradual and careful" approach to cutting interest rates as global trade policy turmoil increasingly clouds the outlook.
• The BoE cut interest rates last month to 4.25% in a three-way split vote. It cited "heightened unpredictability" with markets buffeted by U.S. President Donald Trump's rapidly shifting trade policy.
• While economists polled by Reuters last month expected the BoE to keep cutting rates by a quarter point every three months, financial markets now have only one rate cut fully priced in by the end of this year and just two over the next 12 months.
• Bailey said he had not been surprised by recent data on inflation, which jumped to 3.5% in April from 2.6% the previous month, and he added that the labour market had loosened. Cooling pay growth would be a "crucial" requirement for further interest rate cuts, he told lawmakers. Meanwhile, the BoE said last month it expected the strong growth in the January-to-March period would prove temporary, with output likely to expand by 1% this year, speeding up only slightly to 1.5% growth in 2027.
• External MPC member Swati Dhingra, who voted for a half-point rate cut last month, told the committee that evidence from supply chains pointed clearly to inflation cooling over the medium term, unlike in 2022 when inflation spiked to 11%.
• Catherine Mann, an external member of the MPC who voted against cutting rates last month, said she thought that the labour market was cooling less than she had expected in February when she voted for a half-point cut. She also said the BoE should consider reviewing the pace at which it unwinds past asset purchases rather than relying on extra rate cuts to try to offset upward pressure on long-term bond yields.

(Source: Reuters)