BOE Boss Says Minimum Bar for Tighter Policy Has Been Met

(Bloomberg) -- Bank of England Governor Andrew Bailey said he is among officials who think a minimum criteria for tighter U.K. monetary policy has been met, remarks that could reinforce expectations that the central bank will raise interest rates next year.

Speaking in Parliament on Wednesday, Bailey said officials were evenly split at their August meeting on whether there was clear evidence that the economy is eliminating spare capacity and achieving the 2% inflation target “sustainably.” The BOE had previously said it would keep policy on hold at least until those conditions had been met.

Deputy Governors Dave Ramsden and Ben Broadbent said they concurred. Silvana Tenreyro, an external member of the Monetary Policy Committee, said she was among those who disagreed.

While minutes of the BOE’s August meeting showed officials had differing opinions on the matter, Bailey said Wednesday that the split on the eight-member committee was “four-all.” Still, he stressed that those who thought that condition of the forward guidance had been meet didn’t consider it that as sufficient grounds to push for immediate tighter policy. 

One reason for that could be the uncertain outlook. Bailey also told lawmakers that the pace of the U.K.’s economic rebound is plateauing, as the spread of the delta variant takes a toll.

Losing Steam

The comments chime with a raft of recent data showing growth is losing steam as the exuberance that followed the loosening of curbs on movements fade. 

Figures for July on Friday are predicted to show the economy grew at the slowest pace since the peak restrictions in January.

“We are seeing some flattening out with the rate of recovery” across a range of indicators including mobility and payments, Bailey said. The so-called pingdemic, where workers were forced to self-isolate after coming into contact with someone who tested positive for Covid-19, may also have played a part, he said.

BOE officials last month cut their forecast for third-quarter growth to around 3%, partly as a result of the spread of the delta variant. 

Officials at the meeting voted unanimously to keep rates on hold at 0.1%, but warned that modest increases in coming years were likely to be necessary. Bailey reiterated that on Wednesday, saying it was “reasonable” to expect hikes would come.

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