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Two Bank of England (BoE) policymakers have cautioned about further interest rate cuts, following last week's quarter-point reduction, as wage and inflation measures remain too high.
Clare Lombardelli, deputy governor of the BoE, and Megan Greene, an external member of the Bank’s Monetary Policy Committee (MPC), both said that while they supported the decision to lower interest rates to 4.25%, they were reluctant to take further action without more evident signs of inflation subsiding.
In speeches to the BoE watchers' conference in London, both rate-setters pointed to persistent inflationary risks, particularly around wage growth and services inflation, which they argued remain too high to justify further rate cuts.
Lombardelli said that although forward-looking indicators suggested “substantial progress” in reducing pay growth by the end of the year, the latest data still showed that wage growth was "too high" to be consistent with the BoE's 2% inflation target.
According to the Office for National Statistics, wage growth stood at 5.9% for the three months to February.
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Lombardelli said: “Monetary policy is still restrictive and the current stance reflects a balance between the need to continue to squeeze out underlying inflationary pressure and managing the risks of lower economic demand.
“Wage growth is still too high to be consistent with inflation at target.
“Caution remains appropriate. I’ll be more comfortable when I see material deceleration in the data over a longer period.”
Greene also raised concerns about the slow pace of improvement in services inflation, which was recorded at 4.7% in March. While services inflation had been gradually retreating, Greene expressed worry about the potential for inflation expectations to rise again.
“I don’t think we can pull out the ticker tape and suggest it [inflation] is transitory,” Greene said. “There is still reason to be concerned about inflation persistence.”
Last week's rate cut marked the fourth reduction since summer 2024, lowering borrowing costs to their lowest level since 2023. However, the decision was met with a split vote within the MPC — five members supported the quarter-point cut, two favoured a larger half-point reduction, and two wanted rates to stay at 4.5%.
Lombardelli described her vote as “balanced between holding and cutting rates” but ultimately supported a cut amid “gradual disinflation”.
She explained that in the short term, Trump’s tariffs and broader uncertainties about US policy would likely slow both UK growth and inflation.