The Bank of England should raise interest rates if the economy moves at the expected rate, but things are “risky”, with data providing a mixed picture, according to a central bank official.
Andrew Bailey’s comments over the weekend show that the rise in interest rates at the December Monetary Policy Committee meeting has not taken place, although last week indicates that work has continued. to rise after the end of the UK system of coronavirus furlough, when inflation to hit its highest level in a decade.
Investors were shocked when the BoE stopped raising interest rates this month, but is now betting on policy makers to move in December, with a slight initial increase – for the first time since 2018 – to raise interest rates from a 0.1% drop. and 0.25%.
Huw Pill, chief financial officer at the BoE, said on Friday that “evidence-based interest rates” have now changed so that policymakers can have more information if they have left an unchanged interest rate than if they had raised it. “I’m looking into the possibility of raising prices,” he told a conference in Bristol – adding that while it would be “good” to raise prices to more than 0.25 percent, MPC would still choose different rates. arrest if they think it is appropriate.
In an interview with the Sunday Times, Bailey said the BoE’s main issue would be if the labor market crisis led to higher wages that could keep inflation on the rise.
“Ah, economic activity is declining. B, which has led to many of the high inflationary pressures on the sales side, and the fiscal policy does not address this directly. of electricity prices and material shortages.
He added: “And C, however, our concern is the so-called ‘second outcome’, especially in terms of pay and labor market. . . If the economy is doing well as predictions and reports say, we need to raise prices. ”
But Bailey also warned that although the BoE would continue to ignore inflation last year, the risks of its predictions were now “two-dimensional”, adding: “You are in a very difficult world… There are risks both ways. Obviously, our concern. it could be that if it gets to the second result, that [inflation] can be promoted for a long time. “
The BoE’s latest forecasts show that economic growth is slowing in the last quarter of the year, due to inflation and rising prices that are reducing consumer spending.
But what was published last week shows the resilience in marketing and change in consumer confidence – along with a sharp rise in inflation is another indication that the decline in payroll spending has not led to a sudden decline in employment.
Andrew Goodwin, co-founder of Oxford Economics, said last week’s labor market growth was “very strong” and that “repeating the force in next month’s release, which will be published two days before the MPC ruling, would be enough to make more progress in the run-up to Christmas.”
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