Clare Lombardelli, the Bank’s deputy governor for monetary policy, said that while inflation has been falling, earnings are still rising too fast to be consistent with bringing it back to its two per cent target sustainably.
Ultimately she opted to support a 0.25 percentage point cut to 4.25 per cent – the lowest in two years – citing “further gradual progress on disinflation”.
While that marks a slight slowdown from previous months, it remains well above the Bank’s estimated inflation-compatible range of around 3 to 3.5 per cent.
Lombardelli warned: “Wage growth is still too high to be consistent with inflation at target. Caution remains appropriate. I’ll be more comfortable when I see material deceleration in the data over a longer period.”
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The former senior Treasury official said: “Monetary policy is still restrictive, and the current stance reflects a balance between the need to continue to squeeze out underlying inflationary pressure, and managing the risks of lower demand in the economy.”
The regular agents’ summary of business conditions, published by the Bank, had previously forecast pay would be 4 per cent higher by the end of the year, but the latest survey suggests pay is coming in lower at 3.7 per cent.
“Higher tariffs and more uncertain US policies will likely reduce growth and inflation over the policy-relevant horizon because of reduced demand and trade diversion from reduced exports by the rest of the world to the US.
However, she added that any long-term fragmentation of global trade, such as the decoupling of major economies, could push inflation higher over time.
While headline inflation fell to 2.6 per cent in March, from 2.8 per cent in February, it is expected to rise again in April due to higher energy bills, before easing back later this year.
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