The Bank of England may be forced to start reducing interest rates sooner than previously anticipated after raising them sharply in recent months despite signs of weaker inflation pressures, monetary policymaker Silvana Tenreyro said yesterday.
Tenreyro, who cast one of two votes to leave borrowing costs on hold last month, while a majority of her colleagues on the Monetary Policy Committee backed a 25 basis-point increase in Bank Rate to 4.25%, has opposed rate rises since December.
Addressing the Royal Economic Society’s annual conference in Glasgow, she said: “I expect that the high current level of Bank Rate will require an earlier and faster reversal, to avoid a significant inflation undershoot.”
Investors currently put a 75% chance on a further quarter-point rate hike by the BoE in May and more than a 50% probability on another such increase by August. However, Tenreyro believes that there are emerging signs of a slowdown in the labour market from private-sector pay growth data, which had fallen back sharply in recent months, and she expected inflation would drop well below the BoE’s 2% target.
“With Bank Rate moving further into restrictive territory, I think a looser stance is needed to meet the inflation target in the medium term,” she added.