(Bloomberg) -- Bank of England Deputy Governor Sarah Breeden brushed off this week’s jump in gilt yields and said she is willing to continue with further cuts to interest rates.
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Breeden said after a speech in Edinburgh on Thursday that the sharp rise in UK borrowing costs and fall in the pound were a result of “orderly” market moves, reflecting global factors that are also affecting US and European bonds.
“That’s to be expected as markets react to news about what the outlook is for the fiscal position,” she said in response to a question at the University of Edinburgh Business School. Her comments signaled a reluctance for the BOE to intervene in the market, as it did in 2022 when gilts and sterling plummeted in the aftermath of Liz Truss’s mini-budget. “We’ll continue to watch this space.”
Market expectations of monetary loosening have fallen this week, yet Breeden said there are “tentative” signs of activity weakening and predicted that red-hot wage growth will cool.
“The recent evidence further supports the case to withdraw policy restrictiveness and I expect to continue to remove restrictiveness gradually over time,” she said during the speech.
The comments suggest Breeden is willing to back another rate cut at the next meeting in February despite concerns over recent financial market turmoil and lingering price pressures in the labor market. Breeden is deputy governor for financial stability and rarely gives speeches directly addressing inflation and monetary policy.
Catherine Mann, a fellow member of the BOE’s Monetary Policy Committee, also pointed to weakness in the jobs market as a chronic UK problem. Speaking in a pre-recorded episode of The Economist magazine’s Money Talks podcast, she said both working-age sickness and early retirement among those aged 50 to 65 were holding back the UK’s potential.
“The underlying dynamic of the supply side of the economy is weak – and that is what I have to consider when making judgments about appropriate policy settings,” she said. Mann is the most hawkish of the MPC’s nine members, having voted for faster rate hikes during the inflation shock and later resisting decisions in August and November to cut rates. Weak supply makes an economy more vulnerable to inflation.