Bank sets the scene for summer rate cuts as deputy governor defends its handling of the inflation crisis

The Bank of England’s deputy governor Ben Broadbent yesterday said an interest rate cut is ‘possible’ this summer – as he defended the institution’s handling of the inflation crisis.

Broadbent’s comments, ahead of figures tomorrow that are expected to show inflation falling close to 2 per cent, reinforce market expectations that a cut could come as soon as June.

And he said ‘things would have been a great deal worse’ if politicians were still in charge of rate-setting as they were in previous inflation crises.

The remarks came in Broadbent’s last speech before he leaves the Bank at the end of next month after a decade as deputy governor. 

During that time, inflation spiralled to 11.1 per cent – a four-decade high and several times higher than the Bank’s 2 per cent target – prompting it to push interest rates to 5.25 per cent.

Cautious optimism: Bank of England deputy governor Ben Broadbent said an interest rate cut is ‘possible’ this summer with latest figures expected to show inflation falling close to 2%

Now, however, inflation is falling rapidly and this week’s figures are expected to show it plunging to 2.1 per cent in April.

That would be lower than the 2.4 per cent rate in the eurozone and the 3.4 per cent level in the US – the first time that it has been lower than in both of those economies since March 2022.

Now that inflation appears to be in retreat, Broadbent suggested that the Bank’s Monetary Policy Committee (MPC) could soon loosen the squeeze of high rates on the economy.

‘If things continue to evolve with its forecasts – forecasts that suggest policy will have to become less restrictive at some point – then it’s possible the Bank rate could be cut some time over the summer,’ he said.

Broadbent also used the speech to defend the independence of the Bank of England amid criticism that it was too slow to react to spiralling inflation.

He argued that the current system was better than the old model when politicians set rates.

Broadbent said that during the energy price shock of the 1970s, UK inflation had remained ‘extremely high… even after that original shock had faded’ and much higher than in Germany.

But it had proved ‘much less enduring and much closer to that elsewhere in Europe’ over the past three years.

The difference was that Britain now had rates set independently by its central bank, as Germany did five decades ago, Broadbent said.

‘I’ve little doubt that, had we gone through the pandemic and the war with the monetary regime of the 1970s, in which policy was governed as much by the political as the economic cycle, things would have been a great deal worse,’ he added.