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Investing.com -- The Bank of England should take a “careful and gradual” approach to cutting interest rates amid uncertainty over the labor market and global trade, Deputy Governor Dave Ramsden said on Friday.
Speaking at Stellenbosch University near Cape Town, Ramsden said that persistent wage growth in the U.K. increases the risk of inflation staying elevated. While the BOE has already lowered its key rate three times this year, it remains more cautious than its European counterparts.
“I am now less certain than I was about the outlook for the U.K. labour market, and its implications for future inflation persistence and growth,” Ramsden said. “I no longer think that risks to hitting the 2% inflation target sustainably in the medium term are to the downside.”
Despite advocating a measured approach, he did not rule out the possibility of adjusting policy more aggressively if needed.
“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,” he noted.
Ramsden also highlighted growing uncertainty around international trade, warning that higher tariffs—particularly on imports to the U.S.—could slow economic growth if other nations retaliate.
“Greater trade fragmentation will likely lower U.K. economic activity, as barriers to trade inherently weigh on global demand, weakening demand for U.K. exports, and disrupting supply chains,” he said.
However, the inflationary impact remains uncertain, as it would depend on how trade policies evolve.
“The impact of U.S. tariffs could be inflationary or disinflationary for the UK depending on other countries’ trade policies and the relative strength of different transmission channels,” Ramsden said.