Bank of England policymaker warns of rising inflation risk

Bank of England policymaker Dave Ramsden has endorsed the central bank’s “gradual and careful” strategy for reducing interest rates, citing heightened economic uncertainty.

Speaking in South Africa on Friday, Ramsden, the Bank’s deputy governor for markets and banking, highlighted the dual challenge of rising inflation and sluggish economic growth.

Although the Bank lowered interest rates to 4.5% in February, the likelihood of further cuts has diminished following unexpectedly high inflation figures in recent weeks. In January, core inflation rose to 3% from 2.5% in December.

While Ramsden did not dismiss the possibility of additional rate cuts, he acknowledged that inflationary risks have increased. He stated, “Given the heightened uncertainty and inflation risks on both sides, I am even more convinced that a gradual and cautious approach to easing monetary policy is the right course.”

He also pointed to recent employment data, which showed wage growth reaching an eight-month high, with regular pay rising by 5.9% in the three months leading up to December.

Ramsden expressed growing uncertainty about the UK labor market’s trajectory and its potential impact on inflation and economic growth. The Bank aims to bring inflation down to its 2% target, but rising wages could complicate that effort.

He noted that inflation risks are now “two-sided,” with both inflationary and disinflationary scenarios possible. However, he maintained that the broader disinflationary trend remains intact.

Drawing a comparison to descending a mountain, Ramsden suggested that while a slow approach is often necessary, there could be circumstances that warrant a faster pace of rate cuts.

“There may be times when a slower descent is appropriate, but there will also be situations that require us to move more quickly,” he said.

His comments follow a warning from Bank of England Governor Andrew Bailey earlier in February, in which he described the UK’s economic environment as one of “weak growth” amid potential “global fragmentation.”