Interest rate cuts unlikely in 2024, MPC founding member warns

Dame Deanne Julius served on the Bank of England's first monetary policy committee from 1997 to 2001. Photo: MATT LINK

The Bank of England will not be able to cut interest rates this year, a founding member of the Monetary Policy Committee (MPC) has warned.

High wage growth and the risk of further energy price shocks mean that the Bank may have to raise interest rates rather than cut them, Dame DeAnn Julius said.

Her comments will dampen hopes that the Bank can deliver its first rate cut in the spring after inflation fell to a two-year low of 3.9% in November.

City investors had priced in a first rate cut in May. while some economists predicted the Bank could cut rates from 5.25% to 4% in 2024.

Expectations of rate cuts have already sparked a mortgage price war as banks compete for customers.

Expectations of rate cuts have already sparked a mortgage price war as banks compete for customers.

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But Dame DeAnn, who worked at the Bank's first MPC from 1997 to 2001, said she didn't think rates would fall in 2024.

She said: “I don't think the Bank can because I don't think inflation will come down much further or much faster. I think we're stuck in a pretty difficult situation with inflation.

“Wages are too high. The labor market is too narrow.”

There is also a risk of another rise in energy prices, Dame DeAnn warned, especially as tensions in the Middle East rise.

It is possible that the Bank will even have to raise the bank rate again to 5.5% this year, she added.

From December 2021, the Bank of England raised its headline rate from a record low. from 0.1% to 5.25% in an attempt to return runaway inflation back to the 2% target.

Deutsche Bank expects the consumer price index to average 2.7% in 2024.< /p>

Dame DeAnne said the impact of high wage growth will continue to be felt in the economy this year.

She said: “When you get wage growth as high as we have seen, it affects the entire economy as a whole.” the services sector, which is a much larger sector than the goods sector in our economy.»

According to the Office for National Statistics, annual growth in recurring earnings excluding bonuses was 7.3% from August to October.

This is more than double the rate recorded for the same period in 2019.

Three of MPC Bank's nine members voted to further increase interest rates at the December committee meeting.< /p >