Bailey: Wait to continue lowering rates thanks to disinflation
England Bank Governor Andrew Bailey begins today’s press conference confirming that the bank level has dropped to 4.5%.
He says this will be “welcome news for many people”, adding that the Monetary Policy Committee expects to be able to lower the norms as the “disinflation process” continues.
But he adds:
We will have to judge, meeting with the meeting, how far and fast.
The front road will have “bumps on it”, Bailey Adds, pointing out that we live in an uncertain world.
It flags the bank’s prediction that inflation will increase to 3.7% this year (see previous post) before plunging.
The department of this forecast, the bank sees signs that underlying inflation is facilitating (allowing today’s rate reduction).
The main events
Q: In productivity – the public sector is growing fast, but the productivity of the public sector is not. Why?
Andrew Bailey says various conventions measure public sector production – and they have not shown a simultaneous increase along with public sector employment.
He seems to be suggesting that there is a matter of how well those Convention measures public sector production (for schools and hospitals, for example).
Q: Your predictions are terrible – with higher inflation and lower growth across the forecast horizon? Do you trust your forecasts? Why does the United Kingdom have such an inflation problem?
Andrew Bailey says some of the elements that promote inflation in the UK in the coming months are specific to the UK-as are the highest bus tariffs and water charges.
But other elements, such as rising European gas prices, are more international – but the impact on individual countries depends on the way they manage their internal energy prices.
Back to fees, Bailey Says we should allow Donald Trump’s “Time” administration to process its policies.
The bank will judge them after being implemented, it promises.
Question: You have halved your 2025 growth forecast [to just 0.75%]. How much does this cost because of the budget?
No, it is not judgment on the budget, Bailey Insist.
The growth has been flat since last year’s spring, he points out, leaving the bank to ‘enigm’ for what is happening.
He sounds surprised that growth has been flat even though the UK population, and thus the labor force, has increased – it must be that productivity is negative.
Q: Are you happy to lower interest rates even when inflation rises?
Governor Andrew Bailey is repeated that the bank expects the disinflation process to continue.
Q: Your new analysis of increasing national employer insurance fees (in the last fall budget) shows that you expect more work losses than expected before, and higher prices. So does the growth of NICs make you the most careful to lower rates?
Andrew Bailey She says the bank has not changed its opinion since November, though it has made a slight change in its assessment of the impact of NICS changes.
Firms still expect to see the impact, he suggests.
Question: Despite lowering today’s norm, your monetary policy report shows that many mortgage holders face recapture at a higher rate – so families will be better, or not during the forecasting period?
Andrew Bailey It says lowering today’s rate should have already been prized in prices for mortgage rates.
And he reiterates his warning that Britain faces a “inflation collision” due to the energy prices and service prices.
The Governor of the Bank of England says he is concerned about the impact of this collision on household finances, although the real wages are rising again.
Bailey Acknowledges that households have been injured at the highest prices, even if the growth rate has slowed down, saying:
We understand the difference between inflation and levels.
Q: Are the markets “slightly redundant” over the conversion of Catherine Mann from a hawk to a dove today? After all, your ahead projects look ‘less dovish’ – au got markets waiting for more aggressive cuts?
[Reminder, Mann has surprised the City by voting for a large, half-point cut to rates today, having previously opposed cuts].
governor Andrew Bailey He says there is no ‘group to think’ in the MPC, and that it was a 7-2-seven-member vote that received a similar opinion on the situation, and falling for a quarter cut.
Bailey says he wants to be “very, very clear” that markets should not overlap movements in voting patterns.
“Economic Basics” will determine the path of interest rates, he insists.
Bailey: The fragmentation of the world economy would be bad for growth
Q: What impact can new trade tariffs have on the United Kingdom economy? Asks our economy editor Heather Stewart.
Governor of BOE Andrew Bailey It says that if tariffs caused a fragmentation of the world economy, it would be negative for growing in the world economy due to the impact on trade.
He hopes that it would not happen.
Impact on inflation is much more difficult to calculate.
It depends on what ‘trade redirect’ occurs due to tariffs, and also how exchange rates change.
“The events of the last week” have shown how difficult it is to fact the changes in tariffs in bank forecasts, Bailey adds.
[That’s a fair point! Last weekend, Donald Trump announced 25% tariffs on Mexico and Canada, only to delay them by a month on Monday].
England Bank’s gold distribution games are reserved
Q: How much gold has the Bank of Vaults of England in anticipation of new tariffs left?
Deputy governor Sir shout Ramsden She says the bank has the second largest gold stock in the world, with over 400,000 gold bars in its safe.
This total has fallen about 2% since the end of 2024, he discovers, saying he has had a strong demand for the bank’s gold distribution because the American golden market has traded with a premium in the London market.
Ramsden She says the bank can meet that requirement, but all its existing games have been booked, so any new client trying to get gold from the bank can have to wait a little.
Ramsden He says he faced delays by receiving bank safety this morning, as he had a truck in the yard of rods loaded with gold.
Q: Was the last increase in the costs of borrowing in the United Kingdom due to Britain losing market trust, or was it more due to international factors?
[Reminder, the UK’s long-term borrowing costs hit their highest since 1998 last month, but have now fallen back to levels seen in December].
Governor Andrew Bailey says bond market movements have been part of a global trend.
He emphasizes that the yields of the UK bonds (interest rates) moved essentially with the US norm curve, adding that the last movement below was led by SH.BA
[Bailey is quite right – UK bond yields fell yesterday after weaker-than-expected growth in the US services sector pushed down US Treasury yields, as we covered in yesterday’s liveblog].
Bailey: will not use the term ‘staglation’
Q: You are predicting a flat growth from last March to mid -year, and inflation that grows by autumn – is this light, or even medium staggency?
Andrew Bailey He says he does not use the word ‘stagflation’, as there is no clear definition.
But he confirms that the economy has been ‘flat’ recently, after faster growth than expected in early 2024.
And in photos of inflation, Bailey insists that today’s rate is anchored in the belief that the disinflation process is developing (implying that the fear of staging can be wrong?))
Deputy governor shout Ramsden He points out that the eurozone did not increase in the Q4 of 2024 (as the bank’s fear also occurred in the UK).
Bailey supports Reeves’ growth agenda
Q: What impact will Rachel Rachel Rachel growth have – such as reform planning, a new Heathrow runway, new reservoirs – in the economy?
Bank governor Andrew Bailey He says he is a very strong supporter of the government’s growth agenda, and the agenda of the growth of the previous government as well.
The possible growth in the UK has been low since the financial crisis, he says, so it is “critical” to address it.
Bailey states:
“I am very compatible with the Chancellor at this point.”
But, he adds, structural policies take time to come – so you will not expect much from the influence of Reeves plans to appear quickly, and appear on bank predictions over the next two to three years.
On questions!
Question: Markets assume ‘gradualism’ implies a decrease in the rate for quarter, but your forecasts are based on lower rates. Should we rethink what a ‘gradual’ approach means?
And when you say a “careful approach” is needed to evaluate cuts, what do you mean?
Bailey says “gradual” means that the bank still wants to see the process of disinflation that is happening.
Adding ‘careful’ to the bank’s guidance is a node for domestic and international uncertainties there, he says, discovering that there was a debate to add ‘careful’ to the previous promise of a ‘gradual’ approach.
Internal uncertainty centers for the poor economic view of the United Kingdom and the question of how much it is due to poor demand for supply, Bailey continues – stressing that productivity is weakened.
And internationally, the risks are “two-sided”-they can create conditions where disinflation occurs faster, or slower.
Andrew Bailey Concludes his prepared statement, insisting that the bank level is not in any predetermined road, and that the bank will continue ‘carefully’, judging the ‘rich’ evidence at each meeting.
Bailey: unclear what form global trade policies will take.
It remains unclear what global trade policies can take, Boe Andrew Bailey’s Governor tells reporters in London – a node for the trade war that has exploded between SH.BA and China this week.
Today’s forecasts are not based on any assumptions regarding trade tariffs, he adds.