While the downward inflation trend in the UK has been welcomed and reflected in the first interest rate cut in years, Rob Elder Bank of England’s agent for Greater London warned that geopolitical and climate disasters could impact wiggle room for further Bank cuts.

Speaking at the Mortgage Business Expo 2024 and on the day Hurricane Milton battered the  Florida coast, Elder said major weather disasters and geopolitical tensions always threatened to be the shock events that impacted economies

“All these things can put up inflation. It looks like we are moving to better times but there is always something around the corner that may change things.“

Elder pointed to the fact that the conflict between Ukraine and Russia was a major factor in inflation in the UK rising in the first place and stressed that with 40% of what we consume coming from abroad, we were “always susceptible to what happens across the globe.”

He also warned that those calling future bank interest rate moves should not focus too strongly on policy in the US. “The BoE doesn’t just cut rates based on what the Fed has done. The MPC looks far more closely on what is happening in the UK.” Taking the Ukraine conflict issue as an example, he explained that US energy prices didn’t rise at the same level as was seen in Europe so inflationary pressures were not mirrored.

As for Bank base rates going forward, Elder said that while the BoE had been hugely encouraged by the trajectory on price inflation services price inflation of around 5% was a concern and needed to be lower – around 2%.

He said that the Bank of England believed rates would be  4% by end of 2025 – higher than what he saw as an overly bullish 3.8% being talked up by market watchers who were factoring the Fed in too strongly.

Answering a question from the floor regarding different opinion on rates within the MPC, Elder said it was healthy and normal for different views to be expressed publicly.

Earlier this month the Bank of England’s chief economist (and a member of the Bank’s  MPC),  Huw Pill  said the base rate should not be cut “too far or too fast,” — just a day after the central bank governor argued it should consider a “more aggressive” position.

At the time he said:: “While further cuts in Bank rate remain in prospect should the economic and inflation outlook evolve broadly as expected, it will be important to guard against the risk of cutting rates either too far or too fast.”