Bank of England officials step up hawkish rhetoric

Sterling strengthens against Japanese yen

Sterling traded up against the Japanese yen and euro on Monday morning after a slew of relatively hawkish comments from Bank of England (BoE) decision-makers over the weekend. 

Speaking to the Yorkshire Post, Bank of England governor Andrew Bailey admitted that he was “concerned with inflation above target,” before adding: 

“Unfortunately, if you look at our last forecast, it is going to go higher I am afraid. As the Bank of England governor I would prefer it not be there. But we are in very unusual times and what I would say is we have to manage our way through these times.”

Until recently, Bailey argued that the runaway inflation above the central bank’s 2% target seen in the wake of the Covid-19 crisis would prove to be transitory. In August, however, the BoE was forced to admit that inflation was likely to reach 4% by the end of 2021. 

Bailey maintains ‘transitory’ inflation thesis 

Speaking to the Society of Professional Economists in London last month, the governor maintained his view that “price pressures will be transient” and argued that the higher-than-expected rate of inflation “strengthened” the case for rate rises and not for an end to quantitative easing. 

With the ‘transitory’ hypothesis under further pressure, Bailey admitted over the weekend: “We have got some very big and unwanted price changes.”

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Although he argued that prices are starting to revert, the nation’s foremost central banker admitted: “This has been an almost unprecedented set of events. They are not over yet, that we are learning. We have to manage our way through them, and we will do that.”

Michael Saunders

Commenting on the impending interest rate rise, Michael Saunders, a member of the bank’s monetary policy committee, told The Telegraph

“I’m not in favour of using code words or stating our intentions in advance of the meeting too precisely, the decisions get taken at the proper time. But markets have priced in over the last few months an earlier rise in Bank rate than previously and I think that’s appropriate.”

He added: “The February one is fully priced in and for December, it’s half priced in…I think it is appropriate that the markets have moved to pricing a significantly earlier path of tightening than they did previously.”

By 11:00 (BST), sterling traded flat against the dollar and up by 0.1% and 0.6% against the euro and yen, respectively. 

Further reading: September US payroll figures underwhelm

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