By David Milliken and Suban Abdulla
(Reuters) -Bank of England Governor Andrew Bailey said on Tuesday he was sticking with a “gradual and careful” approach to cutting interest rates as global trade policy turmoil increasingly clouds the outlook.
The BoE cut interest rates last month to 4.25% in a three-way split vote. It cited “heightened unpredictability” with markets in flux thanks to U.S. President Donald Trump’s rapidly shifting trade war.
“I think the path (for interest rates) remains downwards, but how far and how quickly is now shrouded in a lot more uncertainty,” Bailey told parliament’s Treasury Committee.
He said that he had not been surprised by recent inflation data and that the labour market had loosened – with cooling pay growth a “crucial” requirement for further interest rate cuts.
“Gradual and careful remain my … guiding line,” Bailey said of his thinking on future rate cuts, adding that he would not be drawn on his intentions for the June Monetary Policy Committee (MPC) meeting.
Deputy Governor Sarah Breeden, a centrist on the MPC, told lawmakers that she thought there was a case for cutting interest rates last month even without the global trade ructions.
Breeden was one of the majority of five to vote for a quarter-point interest rate cut last month, with the governor.
But Bailey said he was more undecided than Breeden ahead of the May interest rates decision.
“You should think of the majority as having a broad church within it,” Breeden said.
Official data showed Britain’s economy expanded strongly in the first quarter of the year – at odds with downbeat business survey data. Bailey said this pointed to a “disjoint” in data sources that added to the uncertainty faced by policymakers.
“The surveys are probably, on average, a better predictor of the future than the immediately previous GDP number,” Bailey said.
The BoE said last month it expected the strong growth in the January-to-March period would prove temporary with output likely to expand by 1% this year, speeding up only slightly to 1.5% growth in 2027.
(Reporting by David Milliken and Suban Abdulla, additional reporting by Muvija M; Writing by Andy Bruce; Editing by Hugh Lawson)
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