Bank of England governor talks up interest rate cut prospects as inflation eases to 3.2%
The governor of the Bank of England has signalled the UK is still on course for an interest rate cut as official figures show a further easing in the pace of price growth in the economy.
Andrew Bailey was speaking hours before the Office for National Statistics (ONS) revealed that the consumer prices index (CPI) measure of inflation slowed to 3.2% in the 12 months to March – the weakest level for two-and-a-half years.
That was down from the 3.4% figure measured the previous month but slightly above economists’ expectations.
ONS chief economist Grant Fitzner said of the shifts seen last month: “Once again, food prices were the main reason for the fall, with prices rising by less than we saw a year ago.
“Similarly to last month, we saw a partial offset from rising fuel prices.”
A lower inflation rate is welcome for long-suffering households who are seeing a rise in spending power due to wages rising at a faster pace than prices.
A further boost is expected to come from the Bank of England in the coming months as energy-driven inflation continues to ease, with a sharp reduction in CPI this month being widely tipped to take the main measure of inflation towards the Bank’s 2% inflation target.
Some economists expect the Bank to begin the process of withdrawing its medicine to combat inflation in June.
An interest rate cut, from the current 5.25% level, would have the effect of trimming many borrowing costs that have exacerbated the squeeze on personal finances such as through higher mortgage rates.
Mr Bailey told an International Monetary Fund event in Washington: “In the UK we’re disinflating at what I call full
employment.
“I see, you know, strong evidence now that that process is working its way through.
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March: Bank of England governor: ‘We’re on the way’
“Our judgement with interest rates is ‘how much do we need to see now to be confident of the [disinflation] process’.”
But there is a growing school of thought that the Bank may have to hold off on a rate cut.
LSEG data shows a majority of financial market participants now expect a first rate cut in August or even September.
The worries include the threat posed by rising oil costs as the conflicts in the Middle East continue to evolve and the fact that UK wage growth is now running at levels almost double the inflation rate.
Another is emerging from the United States.
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US economy suffering ‘vibecession’?
There, the chair of its central bank has warned that the chances of an imminent interest rate cut have faded as the world’s largest economy runs hot.
The problem for the Bank of England in the wake of Jay Powell’s remarks on Tuesday is that any UK rate cut ahead of the Federal Reserve risks weakening the value of the pound against the dollar.
That would raise the cost of importing key goods priced in dollars such as commodities including oil – and stoke inflation.
Mr Bailey acknowledged: “The dynamics for inflation are rather different now, between Europe… and the US.
“I think there’s more demand-led inflation in the US than we’re seeing,” he added.
Crystal Palace are celebrating a historic win in the FA Cup after a 1-0 victory against Manchester City at Wembley.
It’s the south London club’s first major trophy – and third time lucky after losing two previous finals they have played in. The win also means Palace have qualified for next season’s Europa League.
Eberechi Eze put his side 1-0 up with the game’s only goal in the 16th minute.
Man City were given a chance to equalise when they were awarded a penalty in the 33rd minute, but Palace goalkeeper Dean Henderson – who had earlier escaped a red card for a handball outside the box – saved Omar Marmoush’s spot kick.
Crystal Palace’s Eberechi Eze scores. Pic: PA
Man City’s Omar Marmoush after his penalty was saved. Pic: PA
It briefly seemed the south London team had gone 2-0 up after a 58th-minute strike from Daniel Munoz but the goal was quickly ruled offside.
They then held onto their 1-0 lead until the final whistle, which came after an agonising 10 minutes of injury time.
Dean Henderson dodged a red card and saved a penalty. Pic: PA
Oliver Glasner’s team were the underdogs despite Manchester City having had a difficult season in the Premier League.
Pep Guardiola’s side also lost to their neighbours and rivals Manchester United in last year’s cup final.
‘It’s all about spirit’
Palace goalscorer Eze said he had “no words” as he celebrated with his team mates.
Eze celebrates after the final whistle. Pic: PA
“I can only thank God,” he told ITV. “This is special, this is what dreams are made of, for this club as well. Who would have thought we could do it?
“We’ve made history today. The tactics were good but it’s all about spirit. That’s energy, that’s everyone fighting together and doing what we had to do today.”
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