Bailey says BOE has option to act more forcefully on inflation

BANK of England (BOE) governor Andrew Bailey said policy makers "have the option" of acting more forcefully to contain inflation if there's persistent signs price increases are a problem.

He didn't rule out boosting the benchmark lending rate by 50 basis points at the next meeting, saying the decision still is a month away.

"There will be circumstances in which we will have to do more," Bailey said at a panel discussion in Portugal hosted by the European Central Bank. "We're not there yet in terms of next meeting. But that's on the table. But you shouldn't assume it's the only thing on the table."

He balanced those by noting that "we are at something of a turning point" on the pace of growth in the economy.

"Turning points are the hardest to read," Bailey said. "When I look at the UK economy it is very clear that it is starting to slow. Markets are having to take that on board, and that the data can be quite choppy.

He noted that financial markets are pricing in upside risks for interest rate increases.

He also said:

• Inflation will rise further this year because of an increase in energy prices
• It's the BOE's prime goal to bring inflation back to target
• "We had an inflation number out last week and what I thought on the surface that was pretty much in line with what we expected. Underneath the surface, there was a sign that we saw a shift in the makeup of inflation from the goods supply shock to the energy and food shock, which I would sort of characterise as the post Covid supply-chain shock. We will watch that very, very, very carefully."

Bailey dodged a question about whether the BOE is concerned about a slump in the value of the pound, which is down about 10 per cent against the US dollar so far this year.

"I don't attribute positives or negatives" to the exchange rate, Bailey said. "I'm not surprised. The UK economy is probably weakening rather earlier and somewhat more than others. That's been somewhat evident now for a few months."

The exchange rate, he said, is "one of the many things that goes into the analysis process in terms of how we think about the evolution of inflation." BLOOMBERG