It is too soon to say when the Bank of England will cut interest rates but that is clearly the direction of travel, the central bank's next deputy governor for monetary policy, Clare Lombardelli, said on Tuesday.
Her comments chimed with existing views among the BoE's top brass who have signalled that the next move for rates will likely be down, although the timing will depend on how the economy evolves in the coming months.
"I'm not going to put a date on when I expect the UK to start the process of loosening monetary policy, but it clearly is the case that that will be the direction of travel for European economies," Lombardelli told a hearing convened by parliament's Treasury Committee.
The BoE raised interest rates from 0.1% to 5.25% from December 2021 through to August 2023 as inflation soared to 40-year highs. Most economists polled by Reuters expect it will start cutting interest rates by the third quarter of this year.
In a written submission to the committee, Lombardelli described two-sided risks to the inflation outlook, saying there was uncertainty about how much monetary tightening undertaken by the BoE has fed through to the economy, which could leave policy becoming increasingly restrictive.
"Navigating policy through this uncertainty is the key challenge for bringing inflation back to target sustainably and for growth in the near term," Lombardelli said.
She described the evidence for Brexit's impact on Britain's economy as negative but hard to quantify precisely.
Lombardelli served as chief economic adviser to Britain's finance ministry between 2018 and 2023.
Her appointment continues the recent pattern of senior roles at the BoE frequently being filled by ex-Treasury officials - something that has led to concerns among some Treasury Committee lawmakers about "group-think" at the central bank.
"Not everyone from the Treasury is the same," Lombardelli told the committee on Tuesday.
Deputy governors Dave Ramsden - whom Lombardelli replaced at the finance ministry as chief economist - and Sam Woods are also ex-Treasury officials, as was former deputy governor Jon Cunliffe whose term expired last year. Broadbent also served at the Treasury early in his career.
