BOE Governor Says UK Inflation Is Taking Longer to Come Down

BOE Governor Says UK Inflation Is Taking Longer to Come Down

Bank of England Governor Andrew Bailey warned that inflation in the UK is sticky and taking longer to come down after shock data that fueled bets on higher interest rates.

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(Bloomberg) — Bank of England Governor Andrew Bailey warned that inflation in the UK is sticky and taking longer to come down after shock data that fueled bets on higher interest rates.

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Bailey denied that the UK is suffering from a wage-price spiral but admitted that the central bank is grappling with stubborn core price pressures and a “very tight labor market.” 

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“It’s the stickiness downwards, and the question of how fast is it going to come down,” Bailey said Wednesday at an event hosted by the Wall Street Journal. “Quite a bit of that obviously depends on how inflation expectations are coming down and they are coming down.”

The remarks set out a measured response to Britain’s inflation rate declining much less sharply than economists and the BOE had forecast. While official data on Wednesday showed the Consumer Prices Index rose 8.7% from a year ago in April, Bailey said little to stoke more speculation over future rate hikes. 

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Investors bet on the BOE’s key base rate hitting as high as 5.5% following the release, up from the current level of 4.5%.

The governor welcomed an end to seven months of double-digit inflation but was forced to deny that the UK is undergoing a wage-price spiral. He said the BOE’s rate-setters are focused on the surprisingly strong increases in food and core prices, two hotspots in Wednesday’s inflation release. He admitted that food inflation has been a “puzzle” for officials and is taking longer-than-expected to ease.

“The question for us is how sort of sticky and stubborn is this sort of process down and bear in mind, we’ve got a very tight labor market in this country,” he said.

Bailey insisted the BOE would make its next call on interest rates based on the “evidence” after the third consecutive month of stronger-than-expected inflation.

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“We expected that fall today because we saw annual base effects from energy prices coming out” of the annual comparison, Bailey said. “But there are two things we have to focus on, particularly as components of the whole picture. One is food, and the other one is core inflation, which I think is particularly important because a lot of the persistence can be in there.”

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Bailey said he was “determined” to bring inflation back down to the 2% target.

Read more:

  • Mortgages in the UK Look Set to Get a Lot More Expensive
  • Higher, More Volatile UK Inflation Here to Stay: Bloomberg Q&A
  • UK Price Shock Sends Bond Yields to Levels Last Seen Under Truss

—With assistance from Andrew Atkinson.

(Updates with comments from the appearance from first paragraph.)

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