In a recent event held in Ireland, Andrew Bailey, the Governor of the Bank of England (BOE), dismissed market expectations of imminent interest rate cuts. Bailey underlined the need for officials to persist in their fight against high inflation, despite market traders adjusting their forecasts for more reductions in BOE’s benchmark lending rate for 2022.
Traders now anticipate a substantial 75 basis points of cuts, a significant increase from last month’s forecast of 30 basis points. This comes even as the current inflation rate is three times higher than the BOE’s target. Bailey, along with BOE’s Chief Economist, anticipates a notable decrease in inflation following an upcoming data release next week. They also project a return to the target within two years.
Bailey emphasized that the second half of the battle against inflation would heavily rely on a “restrictive” monetary policy. He also highlighted potential inflationary risks, including conflicts in the Middle East. The Governor remains confident about achieving the 2% inflation target over a two-year period.
These remarks followed BOE’s decision to keep rates at 5.25% for a second consecutive meeting, suggesting that any immediate changes to interest rates are not currently under consideration. This stance has shifted investors’ focus towards potential economic slowdown and the risk of recession.
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