The governor of the Bank of England says it “will have to act” to rein in inflation, adding to expectations of an interest rate hike this year.
In a speech to fellow G30 central bankers on Sunday, Andrew Bailey maintained his view that the current high levels of inflation will ultimately prove “temporary” – though he conceded that price pressure is likely to extend well into next year due to the “energy story”.
The Bank's monetary policy “cannot solve” supply-side problems such as high energy prices and supply chain issues, he said – “but it will have to act and must do so if we see a risk, particularly to medium-term inflation and to medium-term inflation expectations”.
He said “that’s why we at the Bank of England have signalled, and this is another such signal, that we will have to act.
“But of course that action comes in our monetary policy meetings.”
The BoE Monetary Policy Committee's next meeting comes on 4 November, with the rate-setting committee then convening again on 16 December.
The overnight index swap market is predicting the BoE will hike the Bank Rate from 0.1% to 0.25% at the December meeting.
The pound, however, was little moved by the speech.
Analysts at Deutsche Bank (NYSE:DB) said, “It’s difficult to get much more explicit than this and it’ll be interesting to see if we get even more priced into the very immediate front end this morning."
The lack of reaction in sterling was because markets were already pricing in an initial move up to 0.25% by the end of the year before the speech.