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- BoE's governor Bailey: Should economy grow as expected, some modest tightening likely to be needed
BoE's governor Bailey: Should economy grow as expected, some modest tightening likely to be needed
- There has been little headline news on UK economic activity since May
- We do not see spike in unemployment when furlough ends
- It is expected that number of people unemployed will be about 250,000 higher than before the pandemic
- There is growing evidence of job vacancies and labour market tightness
- Underlying wage growth is near pre-COVID levels
- Recovery is unbalanced, weighted towards goods not services
- Inflation is marked by historical standards; it is driven by higher cost of goods, energy prices and supply constraints
- Key question for MPC is whether inflation pressures are temporary
- Our view is inflation pressures will reduce
- MPC will focus on medium term prospects for inflation, not transient factors
- Bank rate is BoE's main tool for altering monetary conditions
- Impact of reducing stock of BoE assets is uncertain
- Impact of asset purchases greatest in dysfunctional markets
- Future steady-state stock of bank reserves will remain larger than before the start of BoE asset purchases
- MPC takes risk of persistently higher inflation seriously
- Good reasons to think above-target inflation will be temporary
- MPC will not hesitate to act
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