By Paul Hannon
The Bank of England should stick to a "careful and gradual" approach to lowering its key rate in the face of uncertainty about the strength of the jobs market and international trade, Deputy Governor Dave Ramsden said Friday.
The BOE lowered its key interest rate for a third time earlier this month, but has been more cautious than its European peers.
In a speech delivered in South Africa, Ramsden said there was an increased risk that inflation would remain high, given the continued strength of U.K. wage rises.
"I am now less certain than I was about the outlook for the U.K. labour market, and its implications for future inflation persistence and growth," he said. "I no longer think that risks to hitting the 2% inflation target sustainably in the medium term are to the downside."
But while Ramsden said mounting uncertainty underscores the need for a "gradual and careful approach to the withdrawal of monetary restraint," it doesn't exclude the possibility of moving rapidly if that was necessary.
"There may be circumstances when a slower-than-expected descent is justified but there will also be times when conditions require that the pace has to quicken," he said.
Ramsden also cited greater uncertainty about the future of international trade as a reason to remain cautious. Higher tariffs on imports to the U.S. and other countries--should they retaliate-- would harm growth, he said.
"Greater trade fragmentation will likely lower U.K. economic activity, as barriers to trade inherently weigh on global demand, weakening demand for U.K. exports, and disrupting supply chains," he said.
However, the impact on inflation would depend on the details of tariffs that are as yet unclear.
"The impact of U.S. tariffs could be inflationary or disinflationary for the UK depending on other countries' trade policies and the relative strength of different transmission channels," he said.
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
February 28, 2025 02:37 ET (07:37 GMT)
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