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Bailey must follow the ECB with Bank of England's first interest rate cut, says ALEX BRUMMER - THIS IS MONEY

JUNE 07, 2024

Are you watching, Andrew Bailey? The European Central Bank (ECB) is not known for its boldness. But after five years of holding its key interest rate at 4pc, it decided that credit conditions are too tight and delivered a quarter of a percentage point cut in rates to 3.75pc.

It put to one side concerns that consumer prices remain sticky, wages keep rising and service sector costs are elevated.

Bank of England Governor Bailey and the monetary policy committee will make its next rate decision on 20© Provided by This Is Money

Just to underline the bravery of bank president Christine Lagarde's decision, it came on the day that Dutch voters were the first to the polls in the European parliament elections across 27 countries.

That demonstrates the Frankfurt-based bank's independence of politics.

The ECB joins a cadre of Western central banks, including Canada, Sweden and Switzerland which regard the battle against the cost of living pressures - caused by Covid supply chain bumps and Russia's war on Ukraine - as over.

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Indeed, signs of softness in the global economy are emerging, driving Brent crude oil prices down to $77 a barrel.

All of this should give Bank of England Governor Bailey and its monetary policy committee (MPC) licence rapidly to lower rates from the present 5.25pc, to 5pc, on June 20. It needs to get on with the job if it is to follow IMF advice and bring rates down to 3.5pc this year.

Headline inflation, down from a peak of 11pc to 2.3pc, is on track. Both the housing market and retail sales are being stifled by unnecessarily harsh rates as the MPC overcorrects from its past mistakes.

A cut in the midst of a heated election campaign would underscore Bank independence. It would be detrimental to the country if a necessary rate cut was delayed for fear it would be seen as giving advantage to the governing Tories.

A cut would ensure that the recovery seen in the first quarter of the year is not obliterated by monetary machismo.


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