Hike cycle ending

Bank official puts interest rate cuts on agenda

Bank of England
The Bank of England has raised rates for eight successive months (pic: Terry Murden)

Bank of England deputy governor Sir Dave Ramsden hinted at a notable shift in monetary policy today by turning the focus on interest rate cuts.

Sir Dave said his preference was “further tightening,” but he admitted that rates will need to come down if the UK economy slumps into a long recession.

He told the Bank of England Watchers’ conference that if households and businesses are under greater financial pressure than expected, “then I would consider the case for reducing Bank Rate, as appropriate”.

While the Bank’s next move is likely to see a further rise, the markets will see his comments as evidence that the monetary policy committee’s aggressive rate hike cycle is coming to an end.

Earlier this month, Ben Broadbent, another deputy governor, told warned that pushing borrowing costs to 5% would shave a similar amount from economic output.

The MPC has raised borrowing costs eight times in a row, including a 75 basis point rise at the last meeting, the biggest move in 33 years.

It is expected to increase rates by a further 50 basis points to 3.5% on 15 December.

The possibility of a softening in interest rate policy is also expected in the US where minutes from the last US Federal Reserve meeting hinted that inflation was being tamed.

The Fed has raised rates at the fastest pace since the early 1980s, including four back to back 75 basis point hikes.

The minutes note that a slowdown could be required to avoid dealing unnecessary damage to businesses and households.

Talk of a softening of monetary policy has seen the pound strengthen to its highest level against the US dollar in three months, reversing all the damage done to the currency since Liz Truss’s ill-fated premiership.

Sterling climbed 0.7% against the dollar today, hitting $1.21.

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