Bank of England Governor Andrew Bailey warned that the base rate won’t be “too fast or too much” after interest rate setters lowered the rate from 4.25% to 4%.
“We have lowered interest rates today, but it’s a clear decision,” Bailey said in a press conference after the Monetary Policy Committee issued the decision at noon.
Some observers viewed the harsh vote as evidence that the committee’s quarterly cut cycle could be suspended.
People are worried about rising inflation in the MPC released today.
Inflation rose to 3.6% in the year to June, partly due to higher costs of food and clothing and rising prices for air and rail travel. This exceeds the bank’s 2% inflation target.
But Bailey said: “There is good reason to think that this rise in title inflation will not last.”
The governor said he expects a slower salary growth to lead to higher prices in the service industry.
But he predicts prices will continue to rise next month to double the bank’s inflation target.
“We think inflation will increase to around 4% in September,” Bailey said.
“Our job is to ensure that once these temporary factors pass, inflation returns to the 2% target, as we expect.
“So it’s important that we don’t lower bank interest rates too quickly or too much.”
The bank now predicts that the UK growth figures, which will be published next week, will show a sharp decline to just 0.1% growth.
By comparison, the first three months of this year expanded by 0.7%.
But Bailey said the current interest rates “continue to fall”, adding that he hasn’t changed since May.
But the governor said interest rate setters now face “real uncertainty” as the risk of inflation outweighs its forecasts and growth.
“We are balancing these two risks. The path is becoming more uncertain,” Bailey said.
