Bank of England governor Andrew Bailey used his Bangkok appearance on Friday to push back, gently, against the case his own hawks have been building. Soaring energy prices have so far had limited wider effects on British prices, he told an Institute of International Finance meeting, adding that it is too early to draw firm conclusions and that the evidence seen so far has been quite subdued, Reuters reported.
The texture behind the judgment is firms absorbing the shock rather than passing it on. Bailey said businesses surveyed by the Bank are focused on cost cutting, reducing headcount and squeezing margins because raising prices is difficult, and warned only that the longer the energy situation lasts, the more likely firms become to pass costs through. He described the economy as more resilient than expected but not as strong as needed, and called it enormously frustrating that inflation, at 3.1 percent in August against a 2 percent target, had been on track to return to target in late spring before the war in the Middle East intervened. He also noted that policy has effectively tightened without a rate move, because the cuts markets had priced before the conflict came off the table in March, leaving UK mortgage rates among the most increased in the G7.
The remarks matter because of the vote arithmetic. The Monetary Policy Committee held Bank Rate at 3.75 percent in September by 6 to 3, with Catherine Mann, Megan Greene and Huw Pill voting to raise it to 4.00 percent, and a Reuters poll now has 54 of 63 economists expecting a hike at the November 5 meeting. Bailey gave no indication of his own vote. A governor describing second round effects as subdued, while his three dissenters describe them as the central risk, sets up September inflation data, due next week, as the print that decides which side of the committee the centre joins.