By William Schomberg
LONDON (Reuters) – The Bank of England is expected to offer a first hint on Thursday that it is tentatively moving towards cutting interest rates, having raised them to their highest since 2008 over the past couple of years.
Governor Andrew Bailey and his colleagues have previously stressed it is too early to talk about lower borrowing costs.
But with the European Central Bank and the U.S. Federal Reserve starting to signal a change in their stance, the BoE may be looking for a different tone too without going too far and suggesting that its fight against inflation is done.
Inflation has dropped from a 41-year high of 11.1% touched in October 2022 but it remains double the BoE’s 2% target at 4%.
Similarly, underlying price pressures and wage growth have lost of some of their heat recently but remain strong.
Investors and economists expect it will take another three or four months before the BoE actually cuts borrowing costs.
Below are five ways that it might show it is changing its stance.
VOTE COUNT
Three of the nine members of the BoE’s Monetary Policy Committee voted to raise Bank Rate in December and November, while the other six decided to keep it on hold.
Economists polled by Reuters this month expected eight members will vote to hold Bank Rate at 5.25% this week, with only one still backing an increase.
Around one in four of the economists predicted that one MPC member – mostly likely Swati Dhingra, who has expressed concern about the risk of keeping rates high for too long – might cast the first vote for a rate cut since September 2021.
TIGHTENING BIAS
The BoE could send another signal that its stance is changing by dropping the guidance that it has used for a year that warns of possible need to raise rates higher if evidence emerges of more persistent inflationary pressures.
GUIDANCE CHANGE
A more explicit acknowledgement that the time for rate cuts is approaching could come if there are changes to another key line from recent BoE statements about how the MPC judges that monetary policy is likely to need to be restrictive for “an extended period of time”.
INFLATION FORECASTS
While the BoE is expected to hint at a future turn in policy, it might also send a message to investors that they have gone too far by betting on four quarter-point rate cuts in 2024.
An increase in its forecasts for inflation to above the BoE’s 2% target in two and three years’ time – which are based on market pricing for the future course of interest rates – would suggest Bailey and his colleagues want to rein in those investors’ bets.
BAILEY’S PRESS CONFERENCE
Bailey will have the chance to put his own spin on the BoE’s central message when he chairs a news conference. In December, he told reporters: “Don’t get me wrong, I’m very encouraged by the progress we’ve seen. But it’s too early to start speculating that we’ll be cutting soon.”
(Writing by William Schomberg; editing by David Evans)
