BoE Governor Bailey is “cautiously optimistic” that inflation pressures are easing

Inflationary pressures in the UK are easing, but it is too early to declare victory, Bank of England Governor Andrew Bailey said on Friday.

“Recent experience makes me cautiously optimistic that inflation expectations are better anchored by existing regimes,” Bailey said in his speech at the Federal Reserve's Jackson Hole Symposium in Wyoming.

“The inflation effects of the second round appear to be smaller than expected.”

“But it is too early to declare victory. Politics must react – the regime works because we use it,” Bailey said.

In early August, the Bank of England cut its key interest rate for the first time since the outbreak of the coronavirus pandemic as inflation fell and underlying growth momentum remained weaker.

The Monetary Policy Committee cut the key interest rate by a quarter of a percentage point from 5.25 percent to 5.00 percent. This was the highest level since the beginning of 2008.

The first cut in UK interest rates since March 2020 was passed by 5 votes to 4. The central bank is widely expected to cut rates even further this year.

The BoE chief also urged caution with regard to inflation remaining weaker than expected, as price growth has not yet returned to the target of two percent.

“Policy must remain restrictive long enough until the risk of inflation remaining sustainably around the two percent mark in the medium term has been further reduced,” Bailey said.

“So the price will remain stable.”

Bailey's comments came after Federal Reserve Chairman Jerome Powell gave a clear signal that interest rates would be cut in the near future and expressed confidence that inflation was on a sustainable path back to the 2 percent target. The Fed is widely expected to cut rates in September.

The European Central Bank is also expected to cut interest rates in September after a pause in July. In June, it cut interest rates by 25 basis points, the first cut since 2019.

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