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Andrew Bailey Says BOE’s Key Rate Won’t Go Back to Near Zero

Andrew Bailey, governor of the Bank of England (BOE), during the Monetary Policy Report news conference at the bank's headquarters in the City of London, UK, on Thursday, Aug. 1, 2024. The Bank of England cut interest rates for the first time since early 2020 and signaled further cautious reductions ahead, offering some relief to households after a year of the UK’s highest borrowing costs for a generation. Photographer: Hollie Adams/Bloomberg (Hollie Adams/Bloomberg)

(Bloomberg) -- Bank of England Governor Andrew Bailey said that interest rates will settle at above pre-Covid levels as policymakers moved to cut rates for the first time since early 2020.

“Don’t expect we’re going back to zero because zero was the product of huge global shocks,” Bailey said Thursday in an interview with Bloomberg TV, referring to the global financial crisis and the pandemic shock. “We’ll be lower than we are today but I think it’s very clear that we’re not going back to zero.”

The UK central bank eased its key lending rate to 5%, down by a quarter point from the highest level in 16 years, and signaled more reductions are likely in the months ahead. Yet policymakers stressed they’ll take a cautious, meeting-by-meeting approach, ruling out back-to-back cuts to prevent inflation flaring up again.

Bailey and his colleagues on the Monetary Policy Committee didn’t provide more detail on the pace of rate cuts or the level where they might settle.

“I’m not giving you any view on the path of rates to come — I’m saying we will go from meeting to meeting, as we always do,” Bailey told reporters in London. “We’ve become sufficiently confident now that we think we can reduce that degree of restrictiveness a bit, and we will go on making that judgment.”

The decline in interest rates is likely to provide limited relief for households reeling from the cost-of-living crisis. That’s especially true for mortgage holders, one of the groups that’s been disproportionately hit by the BOE’s rate-hiking cycle in the fight against inflation. 

Nationwide, one of the UK’s top mortgage lenders, said borrowers with a 25% deposit face five-year fixed rates at 4.6%, more than double the pre-pandemic average. These rates already take into account expectations that interest rates will come down in the near future, according to Robert Gardner, Nationwide’s chief economist.

“The impact is likely to be fairly modest as the swap rates which underpin fixed-rate mortgage pricing already embody expectations that interest rates will decline in the years ahead,” Gardner said.

The BOE also upgraded growth forecasts, though Chief Economist Huw Pill said the economy is coming off a period of weakness after the pandemic.

“We’ve seen growth pick up at a time when we have brought inflation back to our 2% target — that is a pretty positive story,” Pill said in a virtual Q&A webcast Thursday. “Unfortunately, growth has come back from a very low situation. We had a recession. So I wouldn’t overstate the sort of stronger growth we’ve seen in the last few months. And you know, unfortunately, we don’t really expect that to persist.”

--With assistance from Andrew Atkinson.

(Updates with comment from Huw Pill.)

©2024 Bloomberg L.P.