Interest charges could have to fall quicker, says Bank policymaker

The Bank of England will need to cut interest rates more quickly if the jobs market continues to cool, according to its deputy governor.

Sir Dave Ramsden predicted pay rises would average just 2pc next year against the backdrop of a slowing economy. This is down from 6.5pc in 2023, paving the way for lower borrowing costs to support the economy.

He also warned that Rachel Reeves’s Budget tax raid had introduced “uncertainty to the outlook for the labour market and wider economy”, with implications for jobs, wages and prices across the economy.

While the Bank’s deputy governor for markets and banking said a “gradual” approach to cutting interest rates was the right approach because of uncertainties including Rachel Reeves’s Budget tax raid, Sir Dave added: “Were those uncertainties to diminish and the evidence to point more clearly to further disinflationary pressures, which risked inflation falling below the 2pc target on a sustained basis, then I would consider a less gradual approach to reducing Bank Rate to be warranted.”

The Bank cut interest rates to 4.75pc from 5pc this month.

However, the Chancellor’s decision to launch the biggest tax raid in history at the Budget alongside a £70bn increase in public spending partly funded by extra borrowing has led traders to reassess how quickly borrowing costs will fall.

Official figures showed inflation rose more quickly than expected in October. Traders now expect just one more rate cut by March, instead of two more ahead of Ms Reeves’s maiden budget.

Sir Dave said there was already evidence the jobs market was cooling. “My starting point, based on my assessment of the disinflationary process, is to consider it more likely that pay awards will be in the bottom half of the expected 2-4pc range than in the top half.”

He also said higher-than-expected inflation in October did not affect his prediction that the British economy will continue to cool next year.

“A very small miss in one month … doesn’t affect my assessment,” he told an audience in Leeds.

He added that it was too early to assess the impact of Donald Trump’s US election victory.

“Obviously the US economy is the largest economy in the global economy, so the US economy has more of an impact.

“What we will have to do is respond to what actually happens.”

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