Caution remains appropriate. I’ll be more comfortable when I see material deceleration in the data over a longer period.
Clare Lombardelli
13 May 2025
Bank of England Deputy Governor gives her views on inflation at King's Business School conference
Speaking at the Bank of England Watchers’ Conference held just a few days after the Bank’s decision to cut interest rates from 4.5% to 4.25%, Deputy Governor Clare Lombardelli said that while underlying inflation pressures for the UK economy have continued to fall, she remained cautious on inflation outlook.
During her speech, she emphasised the importance of wages as a key driver of moves in underlying inflation. She noted that annual pay growth of 5.9 per cent in February suggested that “wage growth is still too high to be consistent with inflation at target,” but that forward-looking indicators, including the Agents’ pay survey and the most recent pay settlements data, pointed to further progress on disinflation. On balance she concluded that:
Ms Lombardelli also used her speech to highlight how the Bank is making greater use of scenarios as part of its response to a review of its forecasting methods. The first scenario had explored the risk that demand weakens more than expected, while a second scenario explored the risk of a more persistent inflationary environment.
She explained how the Bank had also used the scenarios to consider the consequences “if the economy ends up evolving in a different way than the expected,” and that this process suggested that the interest rate cut “would not lead to large regrets if the economy evolves as in either of the two scenarios.”
More broadly, the evidence suggests that at 4.25% monetary policy is still restrictive, so if we were to find ourselves in a world with greater inflation persistence than expected, policy would still be providing pressure to squeeze inflation out of the system. And it would be doing that whilst having taken out some insurance against the risk of a larger fall in demand through the 25bps cut in May.
The Bank of England Watchers’ Conference, now in its fourth edition, was established to bring together the diverse community of people who have an interest in the work of the Bank of England – and central banking more broadly. Attendees include prominent policymakers at the Bank, economists and Bank watchers from roles in academia, think tanks, financial markets, politics, the media. Students also attended, both from King’s Business School and other universities, and through sponsor PGIM’s partnership with a local school.
