Divergent signals in a narrowing cycle
A narrow rate cut, diverging central banks and the return of uncertainty as policy’s defining feature
Appearing on Bloomberg’s The Pulse with Tom Mackenzie, Dr Vania Stavrakeva of London Business School offered a characteristically clear-eyed reading of a moment when central banking looks less coordinated than it has in years.
The backdrop was busy. The Bank of England had just cut rates by 25 basis points on a knife-edge 5–4 vote, even as Governor Andrew Bailey warned that the pace of easing would slow as the cycle matures. In Japan, Governor Kazuo Ueda struck a notably cautious tone after taking rates to a 30-year high. Across markets, investors were digesting not just policy moves, but the widening gaps between them.
Stavrakeva’s central point was that these divergences are not noise. “If you lift the hood,” she argued, you see genuinely different views about inflation dynamics, growth resilience and the costs of moving too fast or too slowly. What looks like hesitation is often a reflection of how finely balanced the trade-offs have become.
That balance matters because we are no longer in the blunt phase of monetary tightening or easing. As Stavrakeva noted, decisions at this stage are less about direction and more about calibration. Small moves, close votes and careful language are signals that central banks are trying to normalise policy without reigniting old problems or creating new ones.
The discussion also touched on a less obvious driver of market behaviour: technology. Stavrakeva pointed to the surge in interest around artificial intelligence not as hype, but as a story of uneven adoption. AI, she suggested, is best understood as a general-purpose technology whose impact will differ sharply across sectors. Some will see productivity gains quickly; others will lag. That unevenness, layered on top of divergent monetary paths, is a recipe for volatility.
The implication is sobering but useful. Investors and policymakers alike should expect more disagreement, not less, and more dispersion in outcomes across countries and industries. The era of synchronised signals is fading, replaced by one in which judgement, rather than guidance, carries the day.
In that sense, the narrow split at the Bank of England may be less a sign of fragility than of realism. As Stavrakeva’s analysis made clear, uncertainty is no longer something to be smoothed away. It is the condition under which policy is now made.
The full interview on Bloomberg's The Pulse may be viewed here, beginning at 24.01: bloomberg.com/news/videos/2025-12-19/the-pulse