BoE’s Ramsden supports gradual rate cuts, but highlights inflation undershooting risks

BoE Deputy Governor Dave Ramsden expressed support for the MPC’s cautious approach to easing interest rates, citing economic uncertainties tied to recent fiscal measures and labor market data. Ramsden emphasized the need for a “watchful and responsive” strategy given lingering questions about the effects of higher employer taxes and potential misrepresentations in labor statistics.

However, Ramsden suggested he might endorse a faster pace of rate cuts if uncertainties ease and disinflationary pressures become more evident. He noted, “Were those uncertainties to diminish and the evidence to point more clearly to further disinflationary pressures… then I would consider a less gradual approach to reducing Bank Rate to be warranted.”

BoE has projected that inflation will remain above its 2% target until early 2027, driven in part by fiscal stimulus and higher minimum wages under the Labour government. Ramsden acknowledged this scenario as “plausible” but also placed significant weight on an alternative outlook where inflation declines more quickly. This could occur through “more symmetry in wages and price setting, with less domestic inflationary pressure.”

Looking ahead, Ramsden predicted that employers are likely to implement pay settlements at the lower end of the 2–4% range, which could lead to inflation staying closer to 2% in the early part of the forecast period. However, under this scenario, inflation could dip “more materially later on, lower than in the MPC’s published forecasts,” he added.