BOE and MPC Officials Express Concern Over UK Inflation

Snapshot

Sterling was mixed against the U.S. dollar after comments from Bank of England (BOE) officials and Monetary Policy Committee (MPC) members during today’s BOE Monetary Policy Reports before the UK House of Common’s Treasury Committee. Officials generally expressed concerns over the current level of inflation. 

During that meeting, BOE Governor Andrew Baily said that “I’m very uneasy about the inflation situation, I want to be very clear on that. It is not of course where we wanted to be, to have inflation above target”.  The BOE has forecast inflation would climb to 5% in the second quarter of 2022, which is more than double the central bank’s target rate of 2%. 

UK CPI will be released this Wednesday, November 17th, and is expected to show a reading of 3.9%. If the rise in UK CPI comes as expected, or even higher, it will be the biggest percent increase in the UK CPI number seen since 2012. 

Chart of UK CPI from 2011 to 2021. Source: Forex Factory.

Detail

Witnesses testifying before the Treasury Committee today included: BOE Governor Andrew Bailey, BOE Executive Director for Monetary Analysis and Chief Economist Huw Pill, and External MPC Members Michael Saunders and Dr. Catherine Mann.

In his testimony, BOE Governor Andrew Bailey made additional comments regarding inflation, saying that, “The BOE’s estimates based on a steady bank rage showed the inflation overshoot was noteworthy.” Bailey also stated that, “No one at the BOE said it would hike rates in November” but noted that “The November decision was a close call.”
Bailey went on to say that, “It is critical that meetings be addressed the same way in the following months. The decision not to finish QE early was made because it would create questions about whether BoE would complete future QE programmes.”

External MPC Member Michael Saunders also testified to the committee, saying that the MPC “thinks the risk of a general increase in inflation is substantial enough to justify hiking rates now.” Saunders added that, “The risk of postponing hiking rates for too long is that they will have to go up a little faster and further.” Members of the MPC had voted by 7 to 2 in favor of keeping rates steady at 0.1% at their meeting earlier this month. 

BOE Chief Economist Huw Pill told the committee, “These are finely balanced decisions from an individual point of view”. He added that “I agree with BOE’s Saunders about acting late, but I also see the risks of acting too soon.”

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