Bank of England (BoE) governor Andrew Bailey told the Treasury Select Committee on Wednesday that although inflation is coming down, there is still a long way further to go.
“Using a broad range of data is important…and we are frankly great consumers of evidence and information from all sources,” he said.
Bailey also said he can’t say now how they are going to vote in two weeks time as the next rate decision date approaches.
He made the comments during a hearing based on the bank’s August Monetary Policy report and July’s Financial Stability report.
On the question of quantitative easing (QE) going on for too long with the unwinding of it now too sharp, Bailey said that going back to that point in time, the last phase of QE, was done on risk management grounds.
“Our concern was with a lot of uncertainty around the situation with Covid, it provided a degree of insurance against volatility.”
As a result, he said, most people who gave evidence on this, would think it did not make much contribution to inflation.
He further highlighted that there is a negative cash flow at the moment and when asked about the UK being on the brink of a recession, Bailey said “we have not had the degree of shocks in the last year like we had at the beginning of the Ukraine crisis.
“Growth is just above zero, so it is a weak path of growth.”
Meanwhile, external member, Monetary Policy Committee, Dr Swati Dhingra, said the one positive news that has come from the rate rises, that is relative, between December and February, was that energy prices increased and unwound much faster than had been anticipated.
Furthermore, the markets are expecting the interest rate to go up to 6% by the end of 2024.
Sir Jon Cunliffe, deputy governor for financial stability at the BoE, said key indicators will have to be looked at and drew on lessons over the past year.
The comments were all made during a hearing based on the bank’s August Monetary Policy report and July’s Financial Stability report.
MPs are also questioning members of the Monetary Policy Committee (MPC) and Financial Policy Committee (FPC) at the meeting.
Investors will no doubt be digesting Bailey’s latest comments for clues as to which direction the BoE might take next on monetary policy.
Read more: FTSE and European stocks lower amid weak UK economic outlook
While inflation has come down from its peak of 11.1% last October, the rate of price rises remains high, adding strain to consumers struggling to keep up with bills.
As it stands, the BoE wants to get inflation down to its target of 2%. To do that, it hiked rates again last month for a 14th time in a row to 5.25% – the highest rate since the financial crash of 2008.
However, there’s concerns that higher for longer rates could tip the UK into a recession.
This morning, the British Chambers of Commerce (BCC) warned that the UK economy is set to flatline for the next six months.
However, it said the UK will avoid a recession but highlights it will feel a lot like one for millions of households.
The BCC said it expects overall growth of 0.4% for the year and also slashed its forecast for the next two years. It expects the UK economy to grow by 0.3% in 2024, rising to 0.7% in 2025.
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British construction firms also reported suffering a sharp drop in orders in August, adding to concerns about a slowing economy.
Meanwhile, UK Chancellor Jeremy Hunt, has said he’s confident the BoE’s strategy will see inflation halved by the end of the year.
The FTSE 100 (^FTSE) was trading down 0.42% at 7,406.88 points, at the time of writing, while the pound to dollar exchange rate (GBPUSD=X) was at 1.25, and against the Euro (GBPEUR=X), was at 1.16.
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