BoE Deputy Governor Sarah Breeden indicated in a speech growing confidence that further tightening of rates might not be necessary. She noted a pivotal shift in focus towards “how long rates need to remain at their current level.”
Breeden underscored the importance of upcoming pay settlements and corporate responses to rising costs as key determinants of her stance on rate cuts. With pay growth currently running “several percentage points higher than what is consistent with the inflation target were they to persist,” the pathway to aligning underlying inflation with the target hinges on “some combination of a further moderation in labor cost growth and firms’ margins will be needed.”
She noted some encouragement from other economies’ advanced progress in managing inflationary pressures but emphasized the need for “further evidence” before applying similar optimism to the UK’s situation.
The upcoming months are set to play a crucial role in shaping Breeden’s evaluation of wage and price persistence, with a significant portion of the year’s wage negotiations expected to “conclude by April”. This period will be “incredibly important for my assessment,” she remarked, indicating the critical nature of this timeframe in determining the future direction of BoE’s monetary policy.
