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© Reuters. FILEPHOTO: A crowd walks past Bank of England on London’s October 31st, 2021. REUTERS/Tom Nicholson
LONDON, (Reuters) – Andrew Bailey, Bank of England Governor said that while he is concerned about inflation’s outlook that it might be “elevated longer”, there are also possibilities that the inflation will not remain as severe as feared.
The BoE had predicted that inflation would rise to 5% by the end of the first quarter next year. This is more than twice its target. It was due to rising energy prices and supply shortages after the COVID-19 pandemic.
“You’re in a fairly febrile world … [the inflation picture]He said that it was two-sided in an interview with Sunday Times.
There are both risks. Obviously, our concern would be that if it gets into second-round effects, it could be elevated for longer.”
Bailey is especially concerned about the second round effects of wage negotiation and the labor market.
“If the economy evolves in the way the forecasts and reports suggest, we’ll have to raise rates. He said that this is in complete agreement with my October comments.
According to the governor, he expressed concern about inflation this week and said that voting for interest rate increases on Nov. 4, was not an easy decision.
Many investors felt that the BoE was wrongfooted when it failed to raise interest rates above their record low of 0.1%. These comments were made by Bailey in October, which market interpret as a sign that a rate hike is very close.
Inflation has reached a 10 year high of 4.2%. Jobless data does not indicate that there has been an increase in unemployment since the furlough program ended. This was a major concern which was ignored by the BoE at the beginning of March.
More unemployment data is expected to be released before December 16th’s BoE meeting.
Huw Pill, chief economist at the BoE, stated that the evidence pointed to a rise next month in interest rates, but that he hadn’t made a decision and the markets should be more focused on the long term.
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