Governor of the Bank of England Andrew Bailey has talked down expectations that the central bank is readying to pause or pivot rate hikes.
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LONDON — The Bank of England on Thursday talked down expectations that it is readying to pause or pivot rate hikes, noting that there is still some way to go in its efforts to tame inflation.
Governor Andrew Bailey told CNBC that the omission of the word “forcefully” from its forward guidance at Thursday’s Monetary Policy Committee meeting was not a sign that “we’re done” despite seeing an encouraging downward trend in price growth.
“I’m not saying that this is it, we’re done, because the world is too uncertain at the moment,” he told CNBC’s Joumanna Bercetche.
At the same time, it also revised up its economic forecast for the year, predicting a shorter and shallower recession than previously anticipated.
Bailey said there were “a number of reasons” to be more optimistic in its growth forecast, including falling energy prices, a lower market curve of interest rates, and an easing unemployment forecast. However, he cautioned markets against becoming complacent.
“There is an encouraging downward path of inflation in our central projection, but there’s a big risk,” Bailey noted. “We’ve got the biggest risk in our forecast on inflation on the upside than we’ve ever had.”
“We’ve raised interest rates now substantially in the last 12 months or just over 12 months,” he added. “We expect quite a bit of the effect of that is still to come through, so we want to see the evidence of that.”
U.K. inflation came in at 10.5% in December, down slightly from the 10.7% of November. However, the International Monetary Fund on Monday downgraded its projection for U.K. GDP growth in 2023 to -0.6%, making it the world’s worst performing major economy, behind even Russia.
The U.K. central bank, for its part, expects the economy to shrink 0.5% this year, and upward revision of the 1.5% contraction predicted in December. It then sees the economy declining by a further 0.25% in 2024, compared with the 0.9% uptick forecast by the IMF.
The Bank of England’s rate hike follows similar moves by other major central banks this week as policymakers continue their efforts to quell still high inflation.
However, Bailey insisted that the Bank’s policy decisions would not be influenced by those of other central banks.
“We do not coordinate monetary policy in that sense across central banks because we’re each setting monetary policy for our particular setting,” he said. “We have to set interest rates for the U.K.”