Bank of England’s Andrew Bailey forces talk of pause, pan on hikes
Bank of England Governor Andrew Bailey has played down expectations that the central bank is ready to pause or reverse rate hikes.
Yui Mok | AFP | Getty Images
LONDON — The Bank of England on Thursday squashed expectations that it is ready to pause or reverse interest rate hikes, noting there is still work to be done in its efforts to tame inflation.
Gov. Andrew Bailey told CNBC that the omission of the word “powerful” from his forward guidance at Thursday’s Monetary Policy Committee meeting was not a sign that “we’re done,” despite an encouraging downward trend in price growth.
“I’m not saying that’s all, we’re done because the world is too uncertain right now,” he told CNBC’s Joumanna Bercetche.
The bank voted 7-2 on Thursday for a second straight half-point rate hike, raising the bank’s benchmark interest rate to a 14-year high of 4%.
At the same time, it also revised its economic forecast for the year, forecasting a shorter and shallower recession than previously thought.
Sterling fell against the dollar and gilt yields fell in afternoon trade on speculation that the bank may be nearing the end of its rate hike cycle.
“An encouraging downward path”
Bailey said there were “a number of reasons” to be more optimistic on his growth forecast, including falling energy prices, a lower market yield curve and a weakening unemployment forecast. However, he warned markets not to get complacent.
“In our central projection, there is an encouraging downward path for inflation, but there is a big risk,” Bailey noted. “We have the biggest risk we’ve ever had in our inflation forecast.”
“We’ve raised interest rates significantly in the last 12 months, or just over 12 months now,” he added. “We expect some of that to play out, so we want to see the evidence of that.”
UK inflation was 10.5% in December, down slightly from November’s 10.7%. However, the International Monetary Fund on Monday downgraded its forecast for UK GDP growth in 2023 to -0.6%, making it the world’s worst-performing major economy, even behind Russia.
For its part, the Bank of England expects the economy to contract by 0.5% this year, and has revised upwards the 1.5% contraction it had forecast in December. After that, the economy will contract by a further 0.25% in 2024, compared to the IMF’s forecast uptrend of 0.9%.
The Bank of England’s rate hike this week follows similar moves by other major central banks as policymakers continue their efforts to contain still-high inflation.
The European Central Bank voted to hike interest rates by 50 basis points earlier on Thursday and the US Federal Reserve announced a 25 basis point hike on Wednesday.
However, Bailey insisted that the bank’s policy decisions would not be influenced by those of other central banks.
“We don’t coordinate monetary policy across central banks in that sense because we set monetary policy for each of our particular environments,” he said. “We need to set UK interest rates”
https://www.cnbc.com/2023/02/02/bank-of-englands-andrew-bailey-tempers-talk-of-pause-pivot-in-hikes.html Bank of England’s Andrew Bailey forces talk of pause, pan on hikes