Andrew Bailey, the governor of the Bank of England, has hinted at the possibility of interest rate cuts this year, suggesting that the risk of a wage-price spiral has diminished. In an interview with the Financial Times, Bailey expressed increasing confidence that inflation is moving toward the Bank’s target. He indicated that markets were justified in expecting multiple interest rate cuts and emphasized the relatively minor nature of the technical recession experienced last year.
Bailey likened the situation to the tale of Sherlock Holmes, where the absence of expected second-round effects of inflation is a positive sign, indicating that monetary policy has been effective. He noted that global shocks are subsiding, and there is currently limited evidence of persistent inflationary pressures.
According to Bailey, rate cuts are “in play” at future meetings of the Bank’s Monetary Policy Committee, suggesting a potential shift in monetary policy to address economic conditions.
In response to growing anticipation of rate cuts, the FTSE 100 index inched closer to an all-time high on Friday, reaching highs of 7,960 during the trading day but falling short of breaching the 8,000 mark.
Kathleen Brooks, research director at trading platform XTB, attributed the market rally to a more dovish stance adopted by central banks. Notably, at the Bank of England, two previously hawkish policymakers, Catherine Mann and Jonathan Haskel, opted for rates to remain unchanged this month, signaling a shift toward a more accommodative monetary policy stance.
The dovish shift in the Bank’s voting split is viewed as a significant step toward potential rate cuts later in the year. Market sentiment suggests that the first rate cut may occur in June, with expectations of three rate cuts over the course of the year.