Governor of the Bank of England warns of “dual-faced” risks in inflation forecasts

The Governor of the Bank of England said that if the economy develops as expected, the Bank of England will have to raise interest rates, but the situation is “hot” and the data shows mixed results.

Andrew Bailey’s comments over the weekend indicated that although last week’s data showed continued employment growth, the interest rate hike at the December meeting of the Monetary Policy Committee has not yet been completed. rise After the UK Coronavirus vacation plan ends, while inflation beat The highest level in ten years.

Investors were surprised when the Bank of England postponed a rate hike this month, but are now betting that policymakers will take action in December, initially with a slight upward adjustment — for the first time since 2018 — to bring borrowing costs from 0.1 The historical low of% rose to 0.25%.

Huw Pill, chief economist at the Bank of England, said on Friday that the “burden of proof” has now changed. Therefore, compared with raising interest rates, if interest rates remain unchanged, policymakers will have more explanatory work to do. “I’m looking for a reason not to raise interest rates,” he said at a meeting in Bristol-adding that while raising interest rates to multiples of 0.25% may be “convenient,” the Monetary Policy Committee can still choose a different option. The scale of interest rate hikes. If they think it is more appropriate, then tighten.

In an interview with The Sunday Times, Bailey said that the key question for the Bank of England will be whether the tight labor market will lead to higher wage demand, which will keep the inflation rate above the target.

“A, economic activity is slowing down. B. The direct cause of many inflation problems lies on the supply side, and monetary policy will not directly solve these problems… It does not get more gasoline, more computer chips, and more Truck drivers,” he said when referring to soaring energy prices and shortages in the supply chain.

He continued: “And C, but what we worry about is what they usually call the’second round effect’, especially in terms of wage negotiations and the labor market… If the economy develops in the manner implied by forecasts and reports, we Will have to raise interest rates.”

But Bailey also warned that even though the Bank of England has been underestimating the intensity of inflation in the past year, the risks to its forecast are now “two-sided”, adding: “You are in a pretty hot world…. Both. All methods are risky. Obviously, what we worry about is that if it enters the second round of effects, [inflation] Can be improved for a longer time. “

The latest forecast from the Bank of England shows that economic growth slowed in the last quarter of this year due to supply chain disruptions and rising inflation that curbed consumer spending.

But the data released in the past week shows that retail sales are resilient. Improve In terms of consumer confidence-the accompanying widespread rise in inflation and the end of wage subsidies did not lead to further evidence of a sudden wave of unemployment.

Andrew Goodwin of the consulting firm Oxford Economic Research Institute said that last week’s labor market data was “unambiguously strong” and that “this strong momentum will be reproduced in the data released next month, which will be used in the MPC’s decision to make the first two decisions. It’s easy enough to create a majority for the pre-Christmas hike.”

Source link