Interest rate cuts are ‘still some way off’, a leading Bank of England official warned yesterday.
In a blow to millions of families with mortgages, the central bank’s chief economist Huw Pill said there was not yet ‘sufficient evidence’ to reduce borrowing costs.
At the same time, ‘stunning’ jobs figures in the United States dampened expectations of rate cuts on the other side of the Atlantic.
Bond yields – a key measure of the cost of borrowing on financial markets – spiked higher amid a major reappraisal of when rates will be cut. The Bank once again held UK rates at an almost 16-year high of 5.25 per cent on Thursday.
For a long time, it was hoped the first cut would come this spring.
Blow: Investors now predict rates will only be cut to 4.5 per cent by December – and could remain unchanged until the summer
And at the start of the year, markets were expecting rates to fall as low as 3.75 per cent by the end of 2024.
But investors now predict rates will only be cut to 4.5 per cent by December – and could remain unchanged until the summer.
In the US – where rates were this week held at between 5.25 per cent and 5.5 per cent by the country’s central bank, the Federal Reserve – official figures showed 353,000 jobs were created last month.
That was far more than expected and sparked fears that an early rate cut in America would be less likely.
‘Crucially for me at least, we don’t have sufficient evidence yet,’ Pill said when referring to UK interest rates.
‘So that moment at which bank-rate cuts might be possible is still some way off.’
But although rates are expected to remain high for some time, Pill said that does not mean they will not change.
‘The need for restriction doesn’t mean the bank rate has to stay at its current level indefinitely,’ he said.
On Thursday, Bank governor Andrew Bailey said UK inflation was ‘moving in the right direction’ as he scrapped language suggesting that rates could still rise.
Economists were split three ways on the path forward for interest rates – the biggest divide in 16 years. Of the nine rate-setters, six – including Pill – voted to keep them on hold, two voted for a hike and one for a cut.
Tom Simons, an economist at broker Jefferies, described the US jobs figures as ‘stunning’ and said a rate cut as soon as March by the Fed was ‘unthinkable’.
