Bank of England Governor Andrew Bailey expressed cautious optimism on Friday, noting that inflationary pressures in Britain’s economy may be less persistent than in recent years. However, he emphasized it was too early to be certain.
In a speech prepared for a central banking conference hosted by the Federal Reserve in Jackson Hole, Wyoming, Bailey stated, “We are now seeing a revision down in our assessment of that intrinsic persistence, but this is not something we can take for granted.”
Earlier this month, on August 1, the Bank of England lowered its main interest rate to 5% after maintaining it at a 16-year high of 5.25% for nearly a year. Bailey had previously cautioned against cutting rates too quickly or too sharply.
In his Friday speech, Bailey highlighted recent economic signals that have led to his cautious optimism about inflation expectations being better anchored. “The second-round inflation effects appear to be smaller than we expected. But it is too early to declare victory,” he said.
Bailey stressed the uncertainty over whether inflation pressures would decrease to a level consistent with the BoE’s 2% inflation target on a sustained basis, and what measures might be required to achieve this. Meanwhile, market investors have priced in a roughly one-in-three chance of a further quarter-point rate cut by the BoE in September.
In a related development at the Jackson Hole event, Federal Reserve Chair Jerome Powell indicated that the U.S. central bank might also be considering a reduction in borrowing costs.
