'Really too early' to discuss rate cuts, BoE's Bailey says

FILE PHOTO: Governor of the Bank of England Andrew Bailey attends a press conference in London

DUBLIN (Reuters) - Bank of England Governor Andrew Bailey pushed back on Wednesday against discussion of cutting interest rates, less than two days after the central bank's chief economist appeared to back market expectations of a first rate cut in August next year.

Britain still has the highest inflation of any major advanced economy, at 6.7% in September, and last week the BoE kept interest rates at a 15-year high of 5.25%.

Bailey, speaking at a Central Bank of Ireland conference in Dublin, said he was "optimistic" that the BoE would return inflation to 2% by late 2025, as it forecast last week, and he reiterated that monetary policy would need to remain restrictive for an extended period.

"It's really too early to be talking about cutting rates.... We are very clear, we are not talking about that," Bailey said.

Bailey said there were still upside risks to interest rates, for example if events in the Middle East pushed up energy costs.

BoE Chief Economist Huw Pill said late on Monday that market pricing pointing towards a first interest rate cut in August 2024 "doesn't seem totally unreasonable". His comments lead to a sharp fall in short-dated government bond yields on Tuesday.

Interest rate futures now fully price in a quarter-point BoE rate cut for August 2024 with a second rate cut priced in for November 2024 and a greater than 50% chance that the BoE will start to cut rates by June.

(Reporting by Padraic Halpin and Conor Humphries; writing by David Milliken; editing by William James)