Jeremy Hunt has urged the Bank of England not to cut interest rates too quickly after governor Andrew Bailey last week appeared to entertain the idea of cutting borrowing costs.
The chancellor intervened after Bailey suggested rates could come down faster than market expectations.
The Bank held borrowing costs at 5.25% last Thursday but suggested the first rate reduction might come as soon as next month.
Asked for his views, Hunt that the press that he “would much rather that they [the Bank of England] waited until they’re absolutely sure inflation is on a downward trajectory than rush into a decision that they had to reverse at a later stage”.
Stressing that the Bank of England takes its decisions independently, he added: “What we want is sustainably low interest rates, and I think what’s encouraging is that the Bank of England Governor, for the first time, has expressed real optimism that we’re on that path.”
Hunt’s warning stems from fears that the Bank could trigger a renewed surge in mortgage costs if they were forced to change course on interest rates.
Around 1.5 million homeowners are expected to reach the end of fixed-rate mortgage deals this year.
Bailey told the media last week that he was “optimistic” that the era of higher inflation was at an end, though he stressed rate cuts in June were “neither ruled out nor a fait accompli”.
He said: “With the progress we have made, to make sure that inflation stays around the 2% target – it is likely that we will need to cut Bank Rate over the coming quarters and … possibly more so than currently priced in market rates.”
Bailey insisted that the next rates decision will be based on new sets of data relating both to inflation and the health of the jobs market, adding: “That will help us in making that judgement afresh”.
Investors currently expect the Bank to start cutting rates in August, with a view to reducing them to 4.75% by the end of the year.
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