Bank of England deputy governor warns of increased inflation risks

Dave Ramsden, the Bank of England deputy governor, said the United Kingdom’s inflation risks had increased in the past few months. The policymaker revealed that inflation risks had risen due to the increased pay growth. 

Dave Ramsden commented on the rising inflation risks in the United Kingdom, saying a gradual and careful approach to further rate cuts was appropriate. 

Bank of England policymaker warns of rising inflation 

Speaking in South Africa on Friday, the Bank of England deputy governor supported the gradual central bank’s approach to the rate cuts. He highlighted increased uncertainty in the economy due to the stronger-than-expected pay growth. 

Having joined his #MPC colleagues in cutting interest rates earlier this month, Dave Ramsden is clearly having second thoughts and is now highlighting inflation risks. Expect more of this from other MPC members as UK inflation surges to 4pc and beyond! https://t.co/qwbGqA3oLq

— Andrew Sentance (@asentance) February 28, 2025

The deputy governor said he saw a two-sided risk to the inflation outlook and had become less confident about the UK’s labor market outlook. He explained that pay growth had overshot the Bank of England’s expectations. 

Ramsden added that the Central Bank predicted consumer price inflation would accelerate to 3.7 per cent later in the year. He pointed out that this would sway the bank’s stance to lower its interest rates further. The Bank of England announced it would cut its rate by a quarter point in February, citing slow economic growth and increased inflation. 

The rate cutter advocated for a quarter-point rate reduction in the monetary policy committee meeting in December. However, most committee members voted against further rate cuts and held the interest rates. In the February meeting, he voted with the majority for lowering rate cuts to 4.5%. 

Data from the Office for National Statistics(ONS) revealed that the U.K.’s inflation rate rose by 3% in January, above the 2.8% analyst expectations. Britain’s consumer price index(CPI) decreased to 2.5% in December, with core price growth slowing further. 

Core inflation rose by 3.7% in the 12 months to January, a 3.2% increase from the previous month. Grant Fitzner, ONS chief economist, commented that inflation rose sharply this month to its highest annual rate since March last year. Fitzner added that the rise was due to airfares failing to decline as expected. He said that this was the weakest January dip since 2020. 

BOE deputy governor raises concerns over the falling labor market 

Ramsden said that due to the evidence seen in recent months, he no longer thought that risks to hitting the 2 per cent inflation target sustainably in the medium term were to the downside. He added that he felt it was two-sided and reflected the potential for more inflationary and disinflationary scenarios. 

The deputy governor noted concerning developments in the short-term indicators, especially on wages. He pointed out that fourth-quarter annual growth in private sector earnings increased to 6.2 per cent from 4.9 per cent. 

Ramsden suggested that pay growth should maintain its current level this quarter, a percentage point higher than expected in 2024. He added that the labor demand could decrease with falling vacancies and reduced job growth. 

The policymaker stressed that his central view was that the disinflationary process remained intact. He added that given the increased uncertainty and risks to inflation from the near-term outlook and developments in the global economy, a gradual approach to withdrawing monetary restraint would be more necessary. 

Ramasden’s comments came after the Bank of England Governor Andrew Bailey warned that the U.K. was experiencing a weaker economy. He added that amid the global economy’s uncertainty, it was unclear whether inflation would ease in the near future. 

The governor added that the current global fragmentation caused by Trump’s administration in the United States was bad for global economic growth. Trump announced that he would impose trade tariffs on China, Canada, and Mexico, which led to a tumble in global markets. The U.S. president also announced that he would impose more tariffs against the European Union this week. 

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