BoE Governor: UK may cut interest rate before Fed

Andrew Bailey, the governor of the Bank of England, has intimated that because the inflation dynamics of the two economies differ, the UK may be able to cut interest rates before the US. After unexpectedly strong price data in America this week rattled markets, Bailey said there is more demand-led inflation pressure in the US than there is in the UK. He added that there’s “strong evidence” of a pullback in price pressures in the UK.

Bailey’s remarks run are contrary to those of Fed Chair Jerome Powell, who stated that new inflation data suggests it would take more time for US officials to feel confident enough to cut interest rates. Recent weeks have seen a delay in the UK’s first move from August; markets are only anticipating 41 basis points of cuts from the BOE this year.

Recent data revealed that salaries, excluding bonuses, are still increasing at a faster-than-expected 6% annual rate, and there has been an unanticipated spike in unemployment. As a result, BoE policymakers have issued a warning over persistent concerns about pricing pressures in the economy. As of Wednesday morning, economists predict that UK inflation would decrease from 3.4% to 3.1% in March figures.

As pricing pressures lessen and the global economy continues to grow robustly while experiencing disinflation, Bailey stated that there are “very encouraging signs” for the global economy. In the moments after Bailey’s comments, the pound barely moved, closing at $1.2430, down 0.1%.

Bailey added that the global economy’s fragmentation is a “serious problem” that increases its vulnerability to supply shocks. He understood that diversification was necessary to increase resilience in commerce and international ties in light of prior experiences.