Bank of England's Bailey test foreign to Treasury select committee (with others)

Bank of England's Bailey test foreign to Treasury select committee (with others)

Highlights of Bank of England's Bailey's testimony

  • Very uneasy about inflation situation
  • November decision was a very close call
  • We now have much more two-sided risks
  • Labor market looks tight
  • Real puzzle we have is what happens at end of furlough scheme
  • Big question for me is that I think the situation is looking considerably tighter in labor market
  • Structure labor market is very different to 1970s
  • We are seeing increase in dispersion of wage settlements
  • Will be keeping an eye on tomorrow's labor market data
  • My statement October about a need to act on rates was deliberately conditional
  • I was concerned that there was a view that the BOE was not focused on inflation
  • Critical that the may BOE made clear that the price the see of inflation for its policy decision
  • All meetings are in play for a rate rise
  • Given very high of uncertainty in the economy, it would be hazardous to give specific forward guidance
  • We are in the price stability business
  • voted not to and QE early as that would raise question over whether BOE would complete future QE programmes
  • We don't see basic context of low interest rates changing

BOE Sauders (BOE dissenter for higher rates - Hawk):

  • No risk of a wage price spiral
  • Likelihood of a general pick up in inflation is high enough to justify raising rates now
  • We are not having a return of the 1970s in inflation
  • risk of delaying too long on raising rates is will have to go faster and further
  • we would not want to see household inflation expectations trending up from here

BOE chief economist Pill

  • These are finally balance decisions from an individual's point of view
  • Agrees with Saunders about acting late, but also sees risks of acting prematurely
  • ECB has tendency to create an artificial consensus in some ways that is not healthy
  • Overall medium to longer term inflation expectations remains anchored
  • if those expectations were to shift, key that we meet that challenge
  • we are not in a house price boom