Bailey of the Bank of England says ‘warning signs are there’ on inflation – .

Bailey of the Bank of England says ‘warning signs are there’ on inflation – .

LONDON – Bank of England Governor Andrew Bailey told CNBC “the warning signs are there” on inflation, but the central bank will need to see more evidence from the labor market before raising rates.
The Bank surprised markets somewhat by keeping interest rates unchanged on Thursday, with many investors backing it to become the first major central bank to raise rates since the start of the coronavirus pandemic.

Bailey had been among officials who took a hawkish tone ahead of the November policy meeting, but the Monetary Policy Committee voted 7-2 to keep its benchmark interest rate at its all-time low of 0 , 1%. However, he strongly indicated that rates will have to rise imminently, with markets now expecting a hike at his last meeting of the year in December.

When asked if Thursday’s policy decision had damaged the bank’s credibility, Bailey pointed out that her previous remarks that the MPC should act on inflation were “conditional” on whether she starts seeing inflation. medium-term inflation expectations become “unanchored”.

“We don’t see yet, and we don’t see, evidence of this happening, but of course we’re in what I might call a kind of very fragile period, in that sense, because we have inflation well in the past. above target, ”Bailey told CNBC’s Geoff Cutmore shortly after the tariff decision.

“The warning signs are there, the bells are ringing, so to speak, so we have to watch this carefully, and that’s what we are doing. “

The MPC also voted 6-3 to continue the UK government’s existing bond buying program at a target stock of £ 875 billion ($ 1.2 trillion).

Bailey said the decision to keep rates at 0.1% was a “close call,” adding that the reason policymakers held back was that he had yet to see any evidence on the state of the labor market after the end of the country’s holiday scheme in September. 30. About 1 million workers were still in the scheme when it ended, which exceeded the Bank’s previous expectations.

“It was clearly a pretty big moment in time and a shift in the job market, and we haven’t seen any data yet that really gives us a clear picture of what happened after that,” he said. he declared.

Jobs in the UK hit a record 1.1 million in the three months to August, as the unemployment rate fell to 4.5%, indicating a tight labor market and growth potentially higher wages.

Investors were unsure on Thursday whether the bank would kick start its policy normalization, with market data earlier in the week indicating that derivatives traders were expecting a 64% chance of a rise in 15 basis points.

UK inflation unexpectedly slowed in September, increasing 3.1% year-on-year, but analysts expect it to be a brief respite for consumers. August’s 3.2% annual increase was the largest increase since the record began in 1997, and far exceeded the Bank’s 2% target.

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


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