Finance News

Financial institution of England's Bailey says "the warning indicators are there" on inflation

The Governor of the Bank of England, Andrew Bailey.

Simon Dawson | Bloomberg via Getty Images

LONDON – Bank of England Governor Andrew Bailey told CNBC there are "warning signs" about inflation, but the central bank needs to see more evidence from the labor market before raising rates.

The bank surprised the markets somewhat by leaving rates unchanged on Thursday. Many investors had supported her to become the first major central bank to raise interest rates since the beginning of the coronavirus pandemic.

Bailey was among the officials to adopt a restrictive tone in the run-up to the November monetary policy meeting, but the Monetary Policy Committee voted 7-2 to keep the policy rate at its all-time low of 0.1%. However, it strongly indicated the need to hike rates immediately as markets now expect a hike at their final meeting of the year in December.

When asked whether Thursday's monetary policy decision had hurt the bank's credibility, Bailey said his earlier comments that the MPC must respond to inflation were “subject to” whether medium-term inflation expectations are “unanchored”.

"We don't see any evidence of it yet, and we don't see any evidence of it, but of course we are in some kind of very fragile phase, in that sense, because we have inflation way above it." Target, "Bailey told CNBC's Geoff Cutmore shortly after the rate decision.

"The warning signs are there, the bells are ringing, so to speak, so we have to watch it closely and we do it."

The MPC also voted 6: 3 to continue the existing UK Treasury bond purchase program with a target holding of £ 875 billion (US $ 1.2 trillion).

Bailey said the decision to leave rates at 0.1% was a "tight decision". 30. At the time the program ended, around 1 million workers were still being used, which exceeded the Bank's earlier expectations.

"That was obviously an important moment and a shift in the job market, and we haven't seen any data that really gives us a clear picture of what happened after that," he said.

The number of job vacancies in the UK reached a record 1.1 million in the three months to August, while the unemployment rate fell to 4.5%, suggesting labor market tightening and potentially higher wage growth.

Investors were unsure whether the bank would kick off its path towards normalizing monetary policy on Thursday as market data earlier in the week suggested derivatives traders priced in a 64% chance of a 15 basis point hike.

UK inflation slowed unexpectedly in September, rising 3.1% y / y, but analysts expect this to be a brief respite for consumers. The 3.2% annual increase in August was the largest increase since records began in 1997, and far exceeded the bank's 2% target.

The bank now expects inflation to rise further to around 5% in spring 2022 before falling back to its target of 2% by the end of 2023.

Related Articles