Bank’s Ramsden: ‘More evidence’ needed that inflation has been tamed before rates can go down

A rate-setter at the Bank of England said he was looking for “more evidence” that inflation has been tamed before cutting interest rates.

In a speech delivered at the Association for Financial Markets in Europe (AFME) conference, Dave Ramsden, a deputy governor at the Bank, said that progress on inflation over the past few months was “undoubtedly encouraging,” but suggested there was still further work to be done.

Aided by lower gas prices, inflation has fallen from peaks of over 11 per cent to four per cent in January. Markets expect inflation to fall to two per cent in the spring, although there might be a slight uptick over the remainder of the year.

Ramsden admitted that services inflation and wage growth, both of which are key indicators of domestic inflationary pressures, have fallen “somewhat more…than we had expected last autumn”.

However, both measures remain above six per cent which is far too hot to be consistent with the Bank’s two per cent inflation target. Unemployment meanwhile has actually decreased since last summer.

“Key indicators of inflation persistence remain elevated,” Ramsden warned. “I am looking for more evidence about how entrenched this persistence will be and therefore about how long the current level of Bank Rate will need to be maintained,” he continued.

Ramsden was one of six members of the Monetary Policy Committee who voted to leave rates on hold, and said he supported the Bank’s “more balanced outlook” on inflation.

A number of commentators have suggested the Bank risks being too slow in cutting interest rates having been behind the curve when inflation took off. Traders think the Bank will start cutting interest rates this summer, with three cuts expected across 2023.

The Bank of England has hiked interest rates from just 0.1 per cent at the end of 2021 to a post-financial crisis high of 5.25 per cent, although policymakers have suggested that rate cuts are on the way.