Andrew Bailey, the Bank of England governor, warned that “too little” interest rate rises may be needed.
With the Bank of England governor indicating no urgent need for rate rises, rates may rise less than expected.
The central bank has been consistently raising interest rates – making borrowing more expensive – to bring double-digit inflation down to the Bank’s 2% goal.
Further increases were anticipated, but Mr. Bailey’s remarks suggest the rate may stay at 4% for some time.
At a cost of living conference on Wednesday, Mr. Bailey cautioned against suggesting either that we are done with increasing the Bank rate or that we will surely need to do more.
Further increases may “turn out to be suitable,” he said, “but nothing is decided.”
Economic data, such as employment and inflation, will inform the next rate hike choice. That decision will be revealed by the Bank’s monetary policy committee on 23 March.
According to Mr. Bailey, the economy is “changing much as we expected it to.”
“Inflation has been slightly weaker, and activity and wages slightly stronger, though I would stress ‘slightly’ in both cases.”
Mr. Bailey also warned that delaying rate rises could lead to more.
“If we do too little with interest rates now, we’ll have to do more later,” he said. The 1970s gave us that crucial lesson.
Before Mr. Bailey’s speech, markets had priced in a further 0.65 percentage points rise in the interest rate over the next three meetings in March, May, and June.
Pantheon Macroeconomics predicts no rate change in March, but a 0.25 percentage point rise is 40% likely.
“Either way, it is clear from Mr. Bailey’s speech that (decision-making monetary policy) committee is putting more weight on the substantial tightening already delivered and would like to call time on its hiking cycle as soon as it possibly can,” Pantheon said.
