Andrew Bailey, governor of the Bank of England, said on Monday that the recent financial turmoil would not stop the central bank controlling inflation by raising interest rates.
In a speech at the London School of Economics, Bailey stressed that the UK financial system was “resilient, with robust capital and liquidity positions, and well placed to support the economy”.
He made no reference to the possibility that lending might be curtailed, instead reiterating the BoE’s position that interest rates would need to rise further if “any signs of persistent inflationary pressures” were detected.
In questions after his speech, Bailey insisted that nothing had recently happened in financial markets to make the central bank's Monetary Policy Committee (MPC) act in ways to sooth tensions.
“Monetary policy has to take into account credit conditions . . . and we do,” he said.
“The key distinction is we have a financial stability policy that is ensuring financial stability and we did not have to sit down [at the recent MPC meeting] and say: ‘Do we need to use monetary policy to ensure financial stability?’"
Bailey said the BoE had not already decided that interest rates needed to increase further but noted that inflation of 10.4% in February was “much too high”. He stressed that the MPC would assess the “emerging evidence” before opting to lift rates again.
Bailey also commented on the jobs market. He said the end of furlough in September 2021 had been expected to bring a jump in unemployment as businesses hit by the pandemic struggled to keep their staff on payrolls.
Instead, since the pandemic the labour market has been tight as hundreds of thousands of workers ruled themselves out of the labour force.
"The question was about whether firms would be able to survive the prolonged economic impact of the pandemic, let alone continue to invest in the future – or whether millions would be driven into unemployment as the government furlough scheme, which remunerated those whose jobs were in effect suspended, was set to end at the end of September 2021," he said.
This morning, top officials from the BoE will be quizzed by the Treasury Committee about the collapse of Silicon Valley Bank UK, and its rescue by HSBC two weeks ago for £1.
Bailey will testify alongside Sam Woods, the chief executive of the Prudential Regulation Authority (PRA), and Sir Dave Ramsden, the Bank’s deputy governor for Markets.