Chancellor warns Bank of England against cutting interest rates too quickly warning inflation could spike again

9 May 2024, 23:40

Chancellor Jeremy Hunt (L), Andrew Bailey (R)
Chancellor Jeremy Hunt (L), Andrew Bailey (R). Picture: Getty/Alamy
Kieran Kelly

By Kieran Kelly

The Bank of England should avoid cutting interest rates too quickly or risk another inflation spike, Chancellor Jeremy Hunt has warned.

Listen to this article

Loading audio...

It comes after the Bank announced it is keeping the base rate of interest on hold at a 16-year-high of 5.25%.

The Bank of England maintained interest rates at 5.25% at its May Monetary Policy Committee (MPC) meeting.

However, governor Andrew Bailey has signalled optimism that it may soon be able to cut rates, possibly in June.

Mr Hunt has warned against moving too quickly, saying he would “much rather they waited until they’re absolutely sure inflation is on a downward trajectory”.

The Chancellor, Jeremy Hunt, will join Nick Ferrari at Breakfast from 7am. Listen on Global Player, the official LBC app.

Jeremy Hunt eats a pie
Jeremy Hunt eats a pie. Picture: Getty

“What we want is sustainably low interest rates, and I think what’s encouraging is that the Bank of England governor, for the first time, has expressed real optimism that we’re on that path,” the Chancellor said.

The committee voted by a majority of seven to two to keep rates unchanged. Members Dave Ramsden and Swati Dhingra voted to cut rates by 0.25 percentage points.

Read More: Tories criticised for ‘appalling mismanagement of economy’ as mortgage rates set to rise after interest rates held

Read more: Boeing plane skids off runway and bursts into flames in Senegal, injuring 11 passengers as people scramble to break free

Mr Bailey said: "We've had encouraging news on inflation and we think it will fall close to our 2% target in the next couple of months.

"We need to see more evidence that inflation will stay low before we can cut interest rates. I'm optimistic that things are moving in the right direction."

Tom Swarbrick speaks to Liberal Democrat Treasury spokesperson

The MPC indicated it is still looking for more progress on factors including services inflation and wage growth, which have remained persistently high at about 6%, before cutting rates.

Inflation is expected to fall more than previously thought over the coming years, the Bank of England has projected, dropping below its 2% target to 1.5% in 2026.

Headline Consumer Price Index (CPI) inflation is expected to fall below the Bank's 2% target between April and June, but rise again to 2.6% in the second half of this year as the impact of recent drops in energy prices fades.

In the longer term, the Bank dropped its projections for CPI inflation to 2.25% for 2025 and 1.5% in 2026, down 0.25 and 0.5 percentage points respectively on February estimates.

The projection came in the Bank's May Monetary Policy Committee (MPC) report, which signalled optimism from recent falls in retail inflation.

The report said persistently high interest rates had helped push headline inflation down, as the MPC voted again to maintain rates at 5.25%.

The pound fell against the US dollar and euro after the Bank of England signalled growing support for an interest rate cut among policymakers.

Sterling fell 0.3% to 1.246 US dollars and was 0.2% lower at 1.161 euros.

More Latest News

See more More Latest News

Exclusive
Five days of big names: LBC announces guest host week

Five days of big names: LBC announces guest host week

Rachel Reeves

Rachel Reeves vows 'big bang' for pensions as government launches review in bid to boost investment and savings

Amanda Abbington has claimed Giovanni Pernice was 'cruel and abusive'.

Strictly's Amanda Abbington breaks silence over 'cruel' Giovanni Pernice - as first female pro under fire

Donald Trump spoke at a rally for the first time since he was shot in the ear

Donald Trump says he ‘took a bullet for democracy’ at first rally since assassination attempt

A burnt out car in the Leeds suburb of Harehills, after vehicles were set on fire and a police car was overturned as residents were warned to stay home following an outbreak of disorder on Thursday evening. Picture date: Friday July 19, 2024.

Man charged with arson after bus set on fire in Leeds riots over children allegedly removed from local family

Craig Revel Horwood has said the recent allegations have come as a 'shock' to him

Strictly Come Dancing judge Craig Revel Horwood breaks silence after 'shock' of dancing show's abuse allegations

A series of Israeli strikes have been launched against the Houthi-controlled port city of Hodeidah in Yemen

Israel launches series of air strikes on Houthi-controlled city in Yemen day after group claim deadly attack on Tel Aviv

Jay Slater and his mum, Debbie Duncan

Jay Slater's GoFundMe page hits £70k after teen's mum appeals for funeral donations

Holidaymakers have been left stranded during global IT outage

'We're not being given any information': Furious holidaymaker stranded in Rhodes tells of travel hell after IT outage

A burnt out car in the Leeds suburb of Harehills, after vehicles were set on fire and a police car was overturned as residents were warned to stay home following an outbreak of disorder on Thursday evening. Picture date: Friday July 19, 2024.

Further unrest in Leeds as hundreds take to streets to 'demand return of children' allegedly removed from local family

NHS England has warned of "continued disruption" to GP services into next week.

NHS warns of GP disruption after global IT outage as trains, planes and roads remain in chaos leaving Brits stranded

Planes, trains and roads have been hit by travel chaos following Friday's IT outage.

Holiday hell: Trains, planes and roads in chaos after global IT outage - with thousands of Brits stranded abroad

Graham Gomm

Prisoner who escaped custody at HMP Wormwood Scrubs during hospital trip is arrested following manhunt

Charles and Camilla attend the King's Parade outside Pomme d'Or Hotel, Liberation Square in St Helier, Jersey

Charles and Camilla 'rushed to safety by security' after suspect 'spotted on roof' just days after Trump rally shooting

A highway bridge collapsed in northwest China.

At least 12 people dead and more than 30 missing after China bridge collapses due to flooding

Ray Reardon has died

Snooker legend Ray Reardon dies aged 91 after cancer battle