Bank of England Governor Bailey: Unless there is a major shock, interest rates will be difficult to return to ultra-low levels_Rolling News_Finance_Securities Star

(Original title: Bank of England Governor Bailey: Unless there is a major shock, interest rates will be difficult to return to ultra-low levels)

Zhitong Finance APP learned that Bank of England Governor Andrew Bailey said that unless there is another financial crisis or an economic shock of similar scale to the epidemic, it is unlikely that interest rates in the UK will fall back to ultra-low levels. He stressed that it would take a “very big shock” to prompt the central bank to reduce borrowing costs to near zero. Bailey reiterated his view on gradually implementing easing policies after the Bank of England’s Monetary Policy Committee decided to keep interest rates unchanged at 5.0% last week.

Bailey’s comments suggest the BoE sees the neutral rate – which neither stimulates nor depresses the economy – as significantly above the historic lows of recent years. While the BoE began its own rate-cutting cycle in August, policymakers have been careful to signal to investors where they expect rates to settle.

The Bank of England’s base rate was already close to its historical average over the past century, but it fell to 0.5% after the financial crisis and further to 0.1% after the outbreak of the coronavirus pandemic. Bailey noted that these rate changes were caused by two major shocks to the economy.

The BoE is currently phasing out its aggressive policy tightening measures in response to inflation falling to close to its 2% target. Bailey’s comments reflect the BoE’s cautious stance on lowering borrowing costs, in contrast to more aggressive easing signals from U.S. policymakers.

Bailey said: “Inflation has fallen significantly. Our aim is to ensure that it reaches the 2% target level sustainably, although the current composition of inflation remains uneven. However, I am encouraged by the downward trend in inflation. This gives me confidence that interest rates will gradually come down.”

Bailey also reiterated concerns about the impact of Brexit on the UK’s trade links, noting there will be some short-term pain on trade, especially for small businesses.

It is understood that last week, the Bank of England’s Monetary Policy Committee voted 8 to 1 to keep interest rates unchanged at 5%, in stark contrast to the Federal Reserve’s 50 basis point rate cut. This decision was in line with market expectations and pushed the pound to its highest level against the dollar in more than two years.

The Bank of England warned that it would not rush to ease monetary policy as it still needed to wait for further signs of easing inflationary pressures. Bailey said in a statement: “Over time, we should be able to gradually reduce interest rates.” He stressed that this path will depend on whether price pressures continue to ease.

After the rate decision was announced, money markets reduced their bets on the extent of the Bank of England’s interest rate cuts this year, predicting a 41 basis point cut by December, compared with a previous expectation of a 50 basis point cut. The pound rose above 1.33 against the dollar for the first time since March 2022.