“Interest rates are not on autopilot. They cannot be,” Governor Andrew Bailey told a press conference.
That language is likely to disappoint those in financial markets who had hoped for a shift to more rapid easing of policy. Rob Wood, an economist with Pantheon Macroeconomics in London, said the Bank’s caution made ‘back-to-back’ cuts at the Monetary Policy Committee’s next meeting in June unlikely.
The move comes only hours before the U.S. and U.K. are expected to announce the outlines of a trade deal that should soften the direct impact of President Donald Trump’s trade tariffs, but which is unlikely to insulate the British economy completely from the fallout of more protracted U.S. struggles with China and the EU. That’s because much of the work of the U.K.’s key financial and business service sectors oils the wheels of global trade, while manufacturing exports are often intermediate inputs for goods that other countries sell to the U.S.
The Bank put a heavy caveat on its new forecasts, which see a 0.3 percent hit to U.K. growth this year, saying in its new quarterly Monetary Policy Report that the risks to its assumptions are “large and two-sided”.
“The future constellation of trade policies is impossible to predict at this juncture,” it said.
That uncertainty was reflected in a three-way split between the nine members of the Monetary Policy Committee. While five members voted for the quarter-point cut, the Bank’s chief economist Huw Pill and external member Catherine Mann voted for no change, arguing that underlying inflation is still too stubborn. At the other end of the spectrum, external members Swati Dhingra and Alan Taylor voted for a half-point cut.
However, Kallum Pickering, chief economist with brokerage Peel Hunt, said the Bank’s outlook was “much less muddled than the vote suggests,” with a clear majority for easing. He said he expects further cuts in August and November.