Quantitative Easing

BoE faces ultimate test in battle against inflation, says Bailey

A man walks past a window reflecting the Bank of England, in London, Britain December 17, 2020. REUTERS/Hannah McKay/

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LONDON, July 12 (Reuters) – The Bank of England’s independence will be under severe strain as it seeks to bring inflation back from above 9% to its target of 2%, Governor Andrew said on Tuesday. Bailey.

Squeezing the cost of living is a major political issue in the race to replace Boris Johnson as prime minister, and some Tory lawmakers believe the BoE was too slow to raise rates and was wrong to continue buying assets until last December.

“I’m going to be pretty simple about this: I think the most important demonstration of the independence of the Bank of England is that we bring inflation back to target. That’s the biggest test of the system.” , Bailey said in a speech.

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The BoE has hiked interest rates five times since December as it tried to prevent rising inflation from taking root in the UK economy, and it is expected to raise them again at its policy meeting August currency.

Investors see around a 60% chance that the BoE will announce a rare half-percentage-point hike on Aug. 4. She said in June that she was ready to act “with force” if necessary.

Asked at an event organized by the OMFIF, a think tank, about the risks to central bank independence, Bailey said the BoE would bring inflation back to its target, “no ifs or buts. but”.

Earlier in a speech, Bailey reiterated that the BoE would “act forcefully if necessary in response” to signs of lingering inflationary pressure.

This wording was intended to clarify that “there are more options on the table than just another 25 basis points,” he added.

Bailey used his speech on Tuesday to focus primarily on the longer-term issues facing Britain and the global economy. He said his comments did not represent a signal on the BoE’s next moves.

On Monday, Bailey told lawmakers he still expects inflation to fall sharply next year and that there was “a whole range of things” on the MPC’s table at its next scheduled meeting. early August. Read more

Bailey also said on Tuesday that the BoE would set out further plans on Aug. 4 to reverse quantitative easing, reiterating that the selling would be gradual and would not be made in troubled market conditions.

“We will have an overall goal of reduction (of) active sales and liquidation,” he said.

The BoE, Bailey said, will detail a new open market facility to provide liquidity once gilt sales reach a point closer to banks’ underlying demand for central bank reserves.

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Reporting by David Milliken and William Schomberg; edited by Mark Heinrich

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