Bank of England (BoE) Governor Andrew Bailey is delivering his remarks on the policy outlook and responding to questions from the press following the bank’s decision to hike the policy rate by 25 basis points to 4.5% in May.
Key takeaways
“Want to emphasize that having large upside risk on inflation does not call into meeting inflation target.”
“Upside risks may not materialize.”
“The Increase in UK bank funding costs after overseas bank failures was short-lived.”
“Changes are still working the way through the economy, MPC factors this into policy decisions.”
“MPC will adjust bank rate as necessary to return inflation to target sustainably.”
About Andrew Bailey (via bankofengland.co.uk)
“Andrew Bailey previously held the role of Deputy Governor, Prudential Regulation and CEO of the PRA from 1 April 2013. While retaining his role as Executive Director of the Bank, Andrew joined the Financial Services Authority in April 2011 as Deputy Head of the Prudential Business Unit and Director of UK Banks and Building Societies. In July 2012, Andrew became Managing Director of the Prudential Business Unit, with responsibility for the prudential supervision of banks, investment banks and insurance companies. Andrew was appointed as a voting member of the interim Financial Policy Committee at its June 2012 meeting.”
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The Royal Bank of Scotland’s Governor Sir David Bailey recently unveiled measures to address the potential impact of a sharp rise in inflation in the UK and the need to return it to the target rate of 2%.
In his speech, he noted that the Bank Rate – the rate of interest lenders charge to each other for borrowing – would need to be adjusted as necessary in order to bring inflation back to the target sustainably. He added that the aim of such a move would be to safeguard the Bank’s independence, which is the cornerstone of its ability to influence monetary policy and economic performance.
Sir David made clear that while the Bank of England will pay close attention to developments in inflation, difficult decisions would need to be taken in order to protect the stability of the economy and return growth to sustainable levels.
In addition to adjusting the Bank Rate, he highlighted that other measures may be required in order to achieve the desired outcome. These may include an increase in Quantitative Easing (QE), longer-term loans and asset purchases.
Sir David’s speech was made in the context of a challenging economy and an uncertain future outlook. He noted that while inflation has been suppressed by the recent financial crisis, the external environment is becoming increasingly challenging. He also warned that inflation could return to target much more quickly than anticipated due to a strengthening of the Pound or a tightening of global demand.
In conclusion, Sir David emphasised the need for the Bank to remain nimble in its response to changing economic conditions and that it would adjust the Bank Rate as necessary to return inflation to target in a sustainable manner.
