Bank of England policymaker Dave Ramsden has backed the Bank’s “gradual and careful” approach to rate cuts, pointing to “increased uncertainty” in the economy.
Speaking in South Africa on Friday, Mr Ramsden, who is the bank’s deputy governor for markets and banking, pointed to the combination of rising inflation and weak economic growth.
While the Bank cut interest rates to 4.5% at its February meeting, the chances of further rate cuts took a knock after higher-than-expected inflation figures in the weeks since.
The core rate of inflation across the economy rose to 3% in January from 2.5% in December.
While Mr Ramsden did not pour cold water on more cuts, he also said there is more risk of inflation rising than there was before.
He said: “Given the increased uncertainty and risks to inflation on both sides … I am even more certain than I was that taking a gradual and careful approach to the withdrawal of monetary restraint is appropriate.”
Mr Ramsden pointed to a recent employment market report, which indicated that earnings growth hit an eight-month high, with regular pay growth hitting 5.9% in the three months to December.
He said he is “less certain than I was about the outlook for the UK labour market, and its implications for future inflation persistence and growth”.
The Bank wants inflation across the whole economy to return to its 2% target over the coming years, with higher wage growth a potential hurdle to that.
Inflation risks are now “two-sided, reflecting the potential for more inflationary as well as disinflationary scenarios”, he said.
Mr Ramsden, who is the bank’s deputy governor for markets and banking, added: “I do, though, think the core disinflationary process remains intact.”
He also left room for faster cuts, however, drawing an analogy with descending down a mountain, saying that it “doesn’t always mean the descent has to be slow”.
“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.
It comes after governor Andrew Bailey warned earlier in February that the UK is experiencing a “weak growth environment” amid the potential “global fragmentation” of the world economy.
