Andrew Bailey has told business leaders that cutting interest rates is “off the table at the moment”, a clear signal that the Bank of England will keep the cost of borrowing on hold when its rate-setters meet at the end of the month.
The Governor said that while financial markets had spent the early part of the year betting on further reductions, the war in Iran had forced policymakers to press pause. Speaking at the European Central Bank’s annual forum in Sintra, Portugal, Mr Bailey put it bluntly: “There was an expectation that we would cut rates this year. That was off the table in March, and it’s off the table at the moment.”
For the millions of small and medium-sized firms that have spent the past 18 months waiting for cheaper credit, it is an unwelcome message. Markets now expect the Bank to sit tight on Bank Rate at 3.75 per cent for the remainder of the year, leaving overdrafts, asset finance and commercial mortgages pricier for longer.
Mr Bailey was at pains to stress that the pause is not a hawkish turn. He confirmed he had chosen not to back any increase so far this year, pointing to mounting evidence that both the economy and the jobs market are losing momentum.
“We’ve got a softening economy, so we’re seeing a softening labour market, we’re seeing some softening of activity,” he said. “We had that before the hostility broke out in the Gulf.”
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