Bank of England boss sees interest rate trends “downward”

Bank of England Governor Andrew Bailey told CNBC on Tuesday that “interest rates will continue to drop gradually” as central banks juggle inflation and elusive economic growth.

He told CNBC’s Annette Weisbach in Sintra, Portugal, where the European Central Bank held its forum. “But just where we’re going to go for the next meeting, we’ll see.”

Economists expect policy makers to lower interest rates by 25 basis points at their next party in August, which will reduce the base interest rate for central banks from 4.25% to 4%.

But Boe’s Bailey told CNBC that policy makers need to measure whether persistent inflationary pressures, such as average wages exceed inflation and higher energy prices, will continue to weaken.

“The key question for me is that the softening we are starting to see will pass and create an environment where inflation will return to its target?” he warned.

BOE’s inflation target is 2%, but the price increase has stubbornly exceeded that level, May landed 3.4% – Far more than the latest in the neighboring euro zone Inflation printing June 2%. At the same time, growth remains elusive, UK economy fell sharply in April With the increase in global trade tariffs and new domestic tax revenues.

British Finance Minister Rachel Reeves – Last fall Introduced tax increases About businesses that largely fund the massive public spending program – said the latest growth figures were “apparently disappointing”.

She also insisted that the Treasury had taken the “necessary choices to stabilize public finances and control inflation,” noting that her “financial rules” determine that daily government spending would not fund her “financial rules” through borrowing, and she also responded to May’s inflation reading.

However, since the “non-negotiable” rules were enacted last October, the UK’s economic and fiscal outlook has become more challenging, with higher debt, higher debt interest and higher tax revenues fusing lower economic growth forecasts. Back In Marchthe independent Budget Responsibility Office said it expects the UK to grow at 1% this year, hitting 1.9% in 2026.

Prime Minister Reeves acknowledged that there is “more” as the government urgently seeks to boost growth in the UK.

To achieve this while sticking to his own fiscal rules, Reeves essentially retained three options: cut public spending, increase borrowing or further increase tax revenue.

The latter option is the only real option for the government, economists say, as it has already worked on higher public spending and a more sustainable lending framework.

Central bank policymakers tend to explicitly comment on government fiscal policy to avoid alleged intervention or bias. Still, Bailey told CNBC on Tuesday that while Reeves must have “a very clear fiscal framework,” it is important that “there should be appropriate flexibility in it.”

“The UK has a fiscal framework that I and I often discuss. I know that the Prime Minister is very committed to developing strong fiscal policies, which is important for the background of macroeconomic stability,” he said.