(Bloomberg) -- Bank of England Deputy Governor Clare Lombardelli said she needs to see more evidence of cooling price pressures before she backs another interest rate cut.
In an interview with the Financial Times on Tuesday, Lombardelli also warned about the threat to UK growth posed by a global trade war erupting after US President-elect Donald Trump threatened to slap tariffs on goods from Canada, China and Mexico.
Her comments reiterated the BOE’s messaging for a “gradual” easing in policy with traders seeing little prospect of another rate cut next month.
Lombardelli went further than Governor Andrew Bailey and other colleagues in defining “gradual,” which many economists are interpreting as meaning one rate cut a quarter rather than a reduction at every meeting.
“It depends on what we see in the data,” Lombardelli said. “For me, gradual means we will need to see more evidence on this disinflation process continuing before we can continue to ease policy.”
The Monetary Policy Committee lowered rates earlier this month for only the second time this year with Lombardelli in the majority backing a reduction in rates to 4.75%.
However, it promised to take a cautious approach to its process of reversing 14 back-to-back rate hikes to fight inflation. Trump’s victory and the possibility of the UK budget stoking price pressures has only entrenched caution on Threadneedle Street over policy. Markets are now expecting just three quarter-point cuts by the end of 2025.
While Lombardelli said that trade barriers “certainly are negative for growth in the short, medium and long term,” she said the impact on inflation is less clear.
Economists have speculated that economies not directly in Trump’s firing line, such as the UK, could see disinflationary forces take hold in a global tariffs war if it diverts world trade and hits global demand. The FT reported that she acknowledged that higher US tariffs on Chinese goods could mean disinflation elsewhere as the products are diverted at a discount.
However, Lombardelli said that domestic inflationary threats are currently a bigger concern, warning that the labor market is “still tight.” She added high services inflation “does suggest we have further to go.”
Inflation climbed back above the BOE 2% target in October and is expected to rise closer to 3% over the next 12 months.
©2024 Bloomberg L.P.