Interest rate cuts are in play, Bank of England governor Andrew Bailey says

Interest rate cuts this year are “in play” amid signs that the risk of wage-price spiral has diminished, the Bank of England governor has suggested.

Andrew Bailey said he is increasingly confident that inflation is heading towards the Bank’s target in an interview with the Financial Times.

He signalled that markets were right to expect more than one interest rate cut this year and stressed how small the technical recession last year had been.

Mr Bailey told the paper: “It’s like the Sherlock Holmes dog that doesn’t bark.

“If the second-round effects don’t come through that’s good because monetary policy has done its job.

“We have an increasingly positive story to tell on that. The global shocks are unwinding and we are not seeing a lot of sticky persistence (in inflation) coming through at the moment.”

He said that rate cuts are “in play” at future meetings of the Bank’s Monetary Police Committee.

Amid mounting hopes of cuts on the horizon, the FTSE 100 edged closer to an all-time high on Friday.

The index of the UK’s top 100 stocks hit highs of 7,960 during the day, but did not manage to surpass the 8,000 mark.

Kathleen Brooks, research director at trading platform XTB, said: “The market rally this week was driven by news that central banks have shifted to a more dovish stance.

“At the Bank of England, Catherine Mann and Jonathan Haskel, the two remaining hawks at the Bank who had been voting for more rate hikes, changed their tune and opted for rates to remain on hold this month.

“The dovish shift in the Bank vote split is seen as a major step towards cutting rates later this year. The market now thinks that the first rate cut will come in June, and that there will be three rate cuts this year.”