Financial markets are betting on “too many cuts” to interest rates, a Bank of England policymaker has claimed.
Catherine Mann, who sits on the central bank’s Monetary Policy Committee (MPC), said she is not confident the UK will slash its base rate ahead of the Eurozone and the US.
As a member of the MPC, the economist has a vote on whether the Bank of England cuts, holds or raises interest rates.
Last week, the Bank’s committee voted to keep the base rate at 5.25 per cent for the fifth consecutive meeting in a row which Ms Mann supported.
This comes after comments made by the central bank’s governor Andrew Bailey who said the UK economy was “not yet at the point” where interest rates can be cut.
However, Mr Bailey has stated that the current trajectory of the economy is “moving in the right direction” for this to happen.
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A member of the Bank's MPC has poured cold water on any potential cuts to interest rates in the near future
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As it stands, financial markets are currently pricing in a reduction of interest rates to around 4.5 per cent by the end of the year.
Appearing on Bloomberg TV earlier today, Ms Mann suggested that traders should ease expectations about a wave of pending interest rate reductions.
She explained: “They’re pricing in too many cuts. That would be my personal view, and so in some sense, I don’t have to cut because the market already is.”
As well as this, the MPC member emphasised the differences in UK inflation compared with other countries.
Ms Mann said: “Wage dynamics in the UK are stronger and more persistent than the wage dynamics in either the United States or the euro area.
“Underlying services dynamics are also stickier, more persistent than either the US or the euro area.
“So on that basis, it’s hard to argue that the Bank of England would be ahead of the other two regions, particularly the United States.”
As well as this, the economist highlighted that some mortgage lenders have already reduced some borrowing costs.
Due to this, there is slightly less pressure on the Bank of England to act quickly with rate cuts if lenders are already taking action.
Following Ms Mann’s comments, the pound edged slightly higher against the US dollar, increasing by 0.19 per cent to 1.266.
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The Bank of England base rate is at a 15-year high of 5.25 per cent GB NEWSMortgage holders and other debt borrowers have been saddled with rising repayment costs due to the Bank’s decision to hike rates.
This was carried out by the central bank due to Consumer Price Index (CPI) rate of inflation increasing, reaching a high of 11.1 per cent in 2022.
Despite this, savers have benefited from the Bank of England’s wave of rate rises due to getting better returns on high interest accounts.
With inflation easing to 3.2 per cent last months, markets are becoming increasingly confident a rate could is imminent.