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
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