Bank of England needs to start rate easing from June, no excuses!

The Bank of England must not be swayed into thinking a smaller-than-forecast decline in inflation in March should be used to delay rate cuts further.

Britain’s annual inflation fell last month for the second straight month to 3.2%.

Positive Outlook Despite Marginal Deviation

Although this latest data is marginally higher than forecast, the overall inflation outlook is upbeat.

As I was quoted by Yahoo FinanceInvestor Ideasand Live Mint, amongst other media, despite a tougher path to the Bank of England reaching its 2% target, we truly hope officials won’t take this as another motive to delay rate easing any further.

The Call for Timely Action

In my mind, they need to start to reduce the historically high 5.25% rate from June onward; there are no excuses.

According to Bank of England governor Andrew Bailey at an International Monetary Fund event in Washington: “In the UK, we’re disinflating at what I call full employment…Our judgement with interest rates is ‘how much do we need to see now to be confident of the [disinflation] process’.”

As a result, the governor and his team need to hold their nerve and take a proactive stance. Indeed, the summer is the time for the BoE to take decisive and prompt action.

Stimulating Economic Growth

I believe the Bank of England’s previous inaction was a failure as it stood by and did nothing when prices were already beginning to soar.

So, it’s now critical for us to avoid further failure by maintaining a stringent monetary policy. However, this approach is worsening the difficulties experienced by businesses and households throughout the United Kingdom. 

As I said last month, a rate reduction could bring substantial advantages to households. With lower mortgage rates, monthly payments drop, allowing for more disposable income to be available for spending and saving.

In addition, lower borrowing costs make homeownership more attainable for prospective buyers, thus stimulating demand within the housing market.

As such, a rate cut would alleviate financial pressures on households, boosting consumer confidence and spending. This would, in turn, fuel economic growth from the grassroots level.

Moreover, investors also have much to gain from a change in monetary policy towards accommodative measures.

Lower rates often spur demand for riskier assets like equities, as investors pursue higher returns within a low yield setting.

Since equity markets thrive on the promise of more relaxed monetary conditions, a rate cut by the Bank of England would propel stock prices and open up investment prospects across different sectors.

It’s essential that the Bank of England isn’t tempted to delay rate cuts any more. They need to do what’s right and start easing from June onwards.

To read my previous blog post click here

Click here for my YouTubeLinkedIn profile and X accounts.

Your comment

Your email address will not be published. Required fields are marked *

Financial Health Quiz

Discover your financial well-being with the Financial Health Quiz.

In just 2 minutes, assess your finances, get personalized results, and actionable steps – all for free.

Take the quiz

Get the latest from Nigel Green