The Bank of England Governor Andrew Bailey said the most aggressive interest rate rises in four decades could be near an end so long as inflation weakens.
(Bloomberg) — The Bank of England Governor Andrew Bailey said the most aggressive interest rate rises in four decades could be near an end so long as inflation weakens.
“We are approaching a point when we should be able to in a sense rest in terms of the level of rates,” Bailey said Thursday in an interview with Bloomberg TV. “But we haven’t seen the evidence yet to give a stronger sense of the read of that, so that’s why I’m very clear that we have to be evidence driven.”
The comments follow the 12th consecutive rate rise from the UK central bank and suggests officials could pivot to a pause at its next meeting on June 22 if inflation starts to fall sharply as the central bank predicts.
Asked whether the BOE is close to a pause, he said: “Well, I’m going to say I hope we are because this is the 12th consecutive increase in rates. But again, I’ll be very clear that we will be guided by the evidence as it comes to us.”
The remarks reflect the BOE’s determination to follow evidence from economic data in guiding the next interest rate decisions instead of issuing guidance on what they expect to happen. The BOE has raised its benchmark rate to 4.5%, the highest since 2008, from about 0.1% at the start of the hiking cycle in December 2021, and markets anticipate it may push that level to 5% this summer.
The interview remarks were slightly different than the tone Bailey adopted in a press conference earlier Thursday, when he expressed his determination to return double-digit inflation to the 2% target.
“Low and stable inflation is the foundation of a healthy economy, and we have to stay the course to make sure inflation falls back to the 2% target,” Bailey said at the press conference.
In the interview, Bailey said the BOE is looking at the persistence of inflation for evidence. He said the recent strength in inflation in the UK was not being driven by the “persistent elements” the BOE is watching closely but “frontloaded” price pressures, such as food costs.
The more persistent elements, such as services inflation and wage growth, has evolved as the BOE expected, he said.
Bailey added the BOE is not “giving a direction one way or the other” on rates and will now be “shaped by the evidence.”
The BOE didn’t follow the US Federal Reserve in giving any signal to markets on future decisions. While the Fed opened the door to a pause in its hiking cycle last week, the US inflation rate is half of the 10.1% seen in the UK.
However, the gap between UK inflation and price pressures elsewhere is expected to narrow in the coming months.
There is expected to be a big step down in UK inflation in April’s data as last year’s energy bills surge drops out of the annual price figures. It would end seven consecutive months of double-digit inflation in the UK.
“We expect inflation to come off quite rapidly in the rest of this year so we want to see that happen,” Bailey said. “We think quite a lot of it is in the numbers as it were because it’s the other side of what happened last year with energy prices particularly. But we want to see the evidence.”
Read more:
- BOE Raises Key Rate to 4.5%, Signaling More Hikes May Follow
- BOE Says 1.3 Million UK Borrowers Brace for Higher Mortgages
–With assistance from Andrew Atkinson.
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