The Bank of England (BOE) is poised to reduce borrowing costs gradually in the coming months while staying alert to potential economic slowdowns that could require more decisive action, Deputy Governor Clare Lombardelli stated. Speaking on Monday, Lombardelli highlighted that while wage growth shows signs of cooling, it is too early to declare victory over inflation. She emphasized the uncertainty surrounding wage and service price trends, advocating for a cautious and measured approach to monetary policy adjustments.
Gradual Rate Cuts in Focus
Earlier this month, the BOE implemented its second key interest rate reduction of the year. However, it has been proceeding more cautiously compared to the Federal Reserve and the European Central Bank, prioritizing a steady and controlled easing of policy restrictions. Lombardelli reiterated that this approach aims to navigate the uncertain economic landscape effectively, ensuring stability while addressing inflation concerns.
Warning Signs in Economic Activity
Recent data, including a purchasing managers’ survey from November, revealed a decline in U.K. business activity, raising concerns about a potential economic slowdown. Lombardelli pointed out that similar trends in other European economies could have implications for the U.K., underscoring the importance of vigilance in assessing and responding to evolving conditions.
The Need for Proactive Policy Adjustments
Lombardelli acknowledged that should the economy exhibit unexpected signs of weakness, the BOE may need to accelerate its rate-cutting measures. Acting promptly would be crucial, given the lagging impact of monetary policy adjustments. “It’s vital not to act late if the economy shifts in this direction,” she noted, signaling the central bank’s readiness to act decisively if necessary.
Outlook: Balancing Inflation Control and Growth
The BOE faces a delicate balancing act between managing inflation and supporting economic growth. While gradual rate reductions remain the preferred course, Lombardelli’s remarks suggest the central bank is prepared to pivot quickly if the economic outlook deteriorates. This dual approach highlights the BOE’s commitment to safeguarding economic stability amid ongoing challenges.
