(Reuters) – Rate cuts from the Bank of England (BoE) are expected to remain a “distant” prospect due to persistent inflationary pressures, which pose an even greater threat to Britain than to the United States. United, said Megan Greene, a member of the central bank’s Monetary Policy Committee (MPC).
According to Megan Greene, the markets are wrong to anticipate a reduction in BoE rates soon and at a faster pace than that expected for the American Federal Reserve (Fed) this year. She judges that a later start to the BoE’s monetary easing would be preferable.
“In my opinion, rate cuts in the United Kingdom should be far away,” she wrote in an article published in the Financial Times.
Megan Greene’s comments contrast with those of BoE Governor Andrew Bailey, who recently raised the prospect of a rate cut this year, describing the forecast as “not unreasonable”.
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Jonathan Haskel, also a member of the MPC, indicated last month that rate cuts were still far away.
The Bank of England’s next monetary policy meeting is due to take place on May 9.
“Following surprisingly strong US CPI (consumer price) inflation in March, markets now expect the Bank of England to cut rates earlier and more sharply than the Federal Reserve this year ” noted Megan Greene.
“The markets are betting on a rate cut in the wrong direction,” she added, however.
Megan Greene is an American economist who joined the MPC last July.
In the column entitled “Markets must stop comparing the UK and the US”, she emphasizes that persistent inflation poses a greater threat to the UK than to the US.
Money markets expect the BoE to cut key rates by around 45 basis points this year, with a first cut in August, according to LSEG data.
In comparison, the expected drop in the United States is only 42 points, with investors having lowered their expectations on the pace of monetary easing by the Fed after higher-than-expected US inflation data, published on Wednesday.
Morgan Greene points out that the difference in labor force between the two countries is also very pronounced and that services inflation in the United Kingdom remains much higher than in the United States.
“Overall labor market participation in the UK has not returned to its pre-pandemic trend. Participation in the US, on the other hand, has exceeded the pre-pandemic trend “, she argues.
UK consumer price inflation slowed in February to 3.4% year-on-year, and is expected to fall below the BoE’s 2% target between April and June, before rising slightly .
(Written by Mrinmay Dey in Bangalore; French version Claude Chendjou, edited by Sophie Louet)
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