The Bank of England’s Monetary Policy Committee (MPC) left its key interest rate on hold at 5¼% this week, as expected, but there are some clear signals that cuts are coming soon.

For a start, Dave Ramsden (Deputy Governor for Markets and Banking) joined Swati Dhingra in voting for an immediate reduction to 5%. This means that only three of the other seven MPC members need to switch camp for a 5-4 majority in favour of a cut. (A win is a win, however tight the margin may be.)

Moreover, the Bank lowered its medium-term forecasts for inflation, with the new two-year and three-year projections now both below the MPC’s official target of 2%. Crucially, these forecasts were based on the markets’ expectations for the path of interest rates, which were consistent with at least three cuts this year.

Finally, the accompanying statement added some new language which emphasised the importance of the ‘forthcoming data releases’.  With two sets of price and labour data to be released between now and the next policy meeting in late June, rates could still be cut next month (as I expect), or in August at the latest.

This also suggests that there could be three and perhaps four rate cuts before a likely general election in November. That will not be enough to turn the tide for the Tories, but at least the economic backdrop will be brighter.

My January forecast that rates will be cut to ‘around 4%’ by the end of the year may now require at least one move of half a point – which is possible. But a minimum of three quarter-point cuts is surely now baked in, meaning rates will end the year no higher than 4½%.

We will also finally be able to bury the myth that the Bank of England ‘cannot cut before the Fed’. The central banks of both Switzerland and Sweden have already cut their key rates this year, and the ECB is likely to follow them in June. Local conditions still matter: UK inflation is on track to undershoot the US, and the UK economy is weaker.

It is still right to criticise the MPC for moving too slowly. Rates have been kept higher for longer than necessary, compounded by the additional tightening in policy due to the unwinding of bond purchases under QE. The weakness of money and credit growth at the end of last year was a clear warning that was largely ignored.

But in the Bank’s defence, the economy is now showing some signs of recovery, and growth in the supply of money (the key driver of inflation) has picked up a bit too.

Indeed, it was good to see the Bank devote a whole Box in the Monetary Policy Report to “Assessing developments in broad money”. It also noted that the 3-month annualised growth rates of M4 have recovered to 3-5% (a point I had flagged up on X / Twitter when the figures first came out, so maybe someone is listening!).

The threats of a prolonged downturn – or a lurch into harmful deflation – have therefore receded. But even the Bank’s own forecasts now show there is no need to keep rates as high as they are now to get inflation back to 2%. The longer the MPC waits, the greater the risk that these threats will return.

You can follow me on X, formerly Twitter, at @julianhjessop

• Applied economics
• Monetary policy
• UK economy