The Governor of the Bank of England Andrew Bailey has pushed back on criticism that he talked up a interest rate rise, then failed to follow through.
Bailey denied the Bank of England “bottled it” yesterday, adding: “We expect interest rates to rise and we are very clear”.
The pound sank against the dollar yesterday afternoon as markets had largely priced in an interest rate rise from the Bank of England to help calm runaway inflation. At midday the MPC left rates unchanged.
Bailey explained this morning to the BBC why he made so many statements recently talking about high inflation but did not raise interest rates.
He said: “We have to occasionally make quite direct comments on what we think will happen.”
“If you ask the question ‘why haven’t you done it now?’ The answer is all to do with the labour market… there were a lot more people using the furlough scheme right up to the end.
“The labour market looks tight in this country at the moment but the missing piece of evidence is just what has happened after the end of the furlough scheme and we don’t have any data to guide us on that.”
He said the Bank will look at unemployment and wage rates once the data is available.
Bailey also said interest rates are not likely to return to pre-financial crisis levels of four per cent or five per cent.
He added: “We do think interest rates will need to rise but we don’t put a number on it… I’m not going to endorse one per cent… I think it’s correct to think in those terms because what it means is the world of low interest rates we’ve been in since the financial crisis… we’re not going back there.”