According to the central bank governor, the Bank of England will need to raise interest rates if the economy develops as expected, but the situation is “enthusiastic” and the data show a complex situation.
Andrew Bailey’s weekend comments suggest that interest rate hikes at the Monetary Policy Committee in December have not yet been completed, despite data showing continued employment last week. rise Inflation after the end of the UK coronavirus layoff plan strike The highest level in 10 years.
Investors were surprised when the BoE postponed this month’s rate hike, but policymakers moved in December to raise borrowing costs from a record low of 0.1% with a slight initial rise (first time since 2018). I’m betting. To 0.25 percent.
Hugh Pill, chief economist at the Bank of England, said Friday that “burden of proof” has shifted to more explanations for policymakers not to change interest rates than to raise them. “I’m probably looking for a reason not to raise interest rates,” he said at a meeting in Bristol. It may be “convenient” to raise interest rates to multiples of 0.25%, but MPC added that it can still choose different sizes. Tighten if they think it is more appropriate.
In an interview with The Sunday Times, Bailey said the key question for the BoE was whether tight labor markets could lead to higher wage demand and keep inflation above target.
“A, economic activity is slowing. B, many of these inflation problems are on the supply side, and monetary policy does not intend to solve them directly. .. Soaring energy prices. And in connection with the shortage of supply chains, he won’t get more gas, more computer chips, more truck drivers. “
He continued. “And C, but the concern for us is what they classically call the” second round effect, “especially in wage negotiations and the labor market. .. .. If the economy develops as forecasts and reports suggest, interest rates need to be raised. “
But Bailey also warned that even if the BoE underestimated the strength of inflation over the past year, the risks to its forecasts would be “two-sided,” adding: .. .. Both methods carry risks. Obviously, our concern is that when it comes to the effects of the second round, [inflation] It may rise longer. “
The latest BoE forecasts show that economic growth is slowing in the final quarter of this year as supply chain disruptions and rising inflation are curbing consumer spending.
However, the data released last week shows the resilience of retail sales. Improvement Increased consumer confidence — with widespread rise in inflation and further evidence that the end of wage subsidies has not led to a sudden wave of unemployment.
Last week’s labor market data was “obviously strong,” said Andrew Goodwin of consultancy Oxford Economics. “We’ll just repeat that strength in next month’s release, which will be announced two days before the MPC’s decision. Can easily be enough. ” Produces a majority of pre-Christmas hikes. “
BoE warns that risks to inflation forecasts are “two-sided”
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