BoE Governor downplays another base rate reduction

The recent reduction in the base rate to 5.0% may have given the property market a boost but the sector’s hopes of further reductions have been dampened by the Bank of England’s Governor (pictured) who says inflation must remain low for some time before the base rate can be reduced.

Although Andrew Bailey voted to put the base rate on hold at 5% earlier this month he is though encouraged by inflation’s current trajectory.

We have quite an unbalanced mix of components of inflation at the moment.”

During a tour of the Port of Dover, he told Kentonline: “Inflation has come down a long way. We still have to get it sustainably at the target and we have quite an unbalanced mix of components of inflation at the moment.

“But I’m very encouraged that the path is downwards therefore I do think the path for interest rates will be downwards, gradually.”

Gradually

When Kentonline asked him where the base rate might eventually end up, he replied: “Where it will settle is a good question. The simple answer is I can’t tell you with any great accuracy. What I would say is ‘Will we go back to the very low near-zero interest rates that we had until not that long ago’?

“My answer is I would not expect that because what caused interest rates to go that way was, amongst other things, two very big shocks to the economy.

“It all started with the financial crisis then Covid was another big shock.

“To go back down to those levels, you’d have to have very big shocks. Of course, you don’t want very big shocks to happen.

“That’s one way of saying my best guess will be it settles at a neutral rate – quite what that will be depends on a lot of things – but I expect rates to come down.”

The money markets are more bullish, betting on another 0.25% reduction in November and that the base rate will then come down to around 3.5% by the end of next year.