BoE’s Ramsden: Gradual and careful approach needed to rate cuts

Dhwani Mehta FXStreet

Bank of England (BoE) Deputy Governor Dave Ramsden spoke about monetary policy in a world of geopolitical fragmentation at Stellenbosch University in South Africa on Friday.

Key quotes

Gradual and careful approach needed to rate cuts.

That doesn’t always mean the descent has to be slow.

There may be circumstances when a slower-than-expected descent is justified but there will also be times when conditions require that the pace has to quicken.

MPC need to judge evidence afresh each meeting.

Risks to hitting 2% inflation are no longer just to downside, they are two sided.

Core disinflationary process remains intact.

Compared with my position throughout last year, I am now less certain than I was about the outlook for the UK labor market.

Impact of US tariffs could be inflationary or disinflationary for the UK.

Entirely possible that the current supply capacity is even weaker than we assessed it to be and may be more persistently weak through the forecast.

I voted for 25 bps cut in December 2024 due to concern that interaction of weaker demand with a loosening labour market could be multiplicative, opening up an excessive degree of slack.

Market reaction

At the time of writing, GBP/USD is losing 0.20% on the day to trade near 1.2580.

BoE FAQs

What does the Bank of England do and how does it impact the Pound?

The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).

How does the Bank of England’s monetary policy influence Sterling?

When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.

What is Quantitative Easing (QE) and how does it affect the Pound?

In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.

What is Quantitative tightening (QT) and how does it affect the Pound Sterling?

Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.

Author

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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