Deputy Governor Dave Ramsden has cautioned that inflationary pressures in the UK remain a concern, despite ongoing efforts to stabilise the economy. While the Bank of England (BoE) has adopted a measured approach to interest rate adjustments, recent data suggests that price rises and wage growth could slow down further monetary easing.
Speaking in South Africa, Ramsden highlighted the “increased uncertainty” surrounding the UK economy, particularly with price growth showing signs of persistence. This comes after the BoE’s decision to lower interest rates to 4.5% in February, a move that may now face delays following a sharper-than-expected rise in prices.
Rising Price Pressures Cloud Outlook for Interest Rate Cuts
The latest price growth figures have cast doubt on the pace of future interest rate cuts. According to official data, core consumer prices rose to 3% in January, up from 2.5% in December. This unexpected increase has reinforced concerns that cost pressures are not easing as quickly as anticipated.
In his speech, Ramsden stated that the central bank must proceed with “a gradual and careful approach”, balancing the need to ease financial conditions while remaining vigilant about potential inflationary risks.
He warned that price growth risks are now “two-sided”, meaning that both inflationary and disinflationary scenarios could play out in the coming months.
A key factor influencing inflation is the labour market, which remains tight. According to recent employment data, earnings growth reached an eight-month high in the three months leading up to December, with regular pay growth at 5.9%.
Wage increases, if sustained, could push price pressures higher, making it harder for the BoE to reach its 2% target. Ramsden acknowledged this risk, stating that he is ‘less certain’ about how labour market conditions will impact future cost-of-living trends
Cautious Optimism as Disinflationary Trend Holds
Despite the risks, Ramsden indicated that the “core disinflationary process remains intact”, suggesting that long-term inflationary pressures may still be easing. While uncertainty persists, he left room for flexibility in monetary policy, stating that the pace of rate cuts “doesn’t always mean the descent has to be slow”.
This sentiment aligns with earlier comments from BoE Governor Andrew Bailey, who warned that the UK faces a “weak growth environment” amid global economic shifts. The BoE aims to strike a delicate balance—supporting economic recovery while preventing inflation from re-accelerating.
