Bank of England Deputy Governor Backs Gradual Interest Rate Cuts

In a speech at the University of Edinburgh, Bank of England Deputy Governor Sarah Breeden signaled support for gradual interest rate cuts, Reuters reports. While she acknowledged the need for easing monetary policy, she also emphasized the uncertainty surrounding the appropriate pace of rate reductions.

"The recent evidence further supports the case to withdraw policy restrictiveness and I expect to continue to remove restrictiveness gradually over time," Breeden stated in her speech. However, she cautioned that determining the optimal speed for rate cuts remains challenging.

Breeden, who is viewed as a centrist on the Monetary Policy Committee, emphasized that interest rates are expected to decline over time as the impact of recent economic shocks diminishes. She also noted that an upside inflation scenario she previously identified as a major concern is no longer a central consideration in policy decisions.

The Bank of England reduced interest rates to 4.75% from 5% in November. However, this move coincided with an upward revision of inflation forecasts, attributed in part to the government's October 30 budget announcement, which included tax hikes and is expected to stimulate short-term growth. The central bank has consistently indicated its intention to proceed with further rate cuts in a gradual manner.

Financial markets are currently pricing in two quarter-point rate cuts this year, while economists polled by Reuters anticipate an average of four cuts.

Breeden also addressed the recent sell-off in the UK government bond market, where 30-year gilt yields reached a 26-year high. She attributed this movement to global factors and noted that the BoE is closely monitoring the situation.

"So far the moves have been orderly. We do need to watch this space. So far, so good," Breeden said, linking the decline in gilt prices to global factors.