A quick summary of the BOE press conference

Governor Andrew Bailey’s Comments:
Governor Bailey of the Bank of England highlighted various insights during his recent discussions. He noted increased skepticism among businesses about their ability to pass on higher wage costs, reflecting broader economic uncertainties. Bailey emphasized that recent market movements in interest rate expectations were largely influenced by U.S. actions, with UK inflation dynamics differing significantly. He also pointed out issues with labor force participation data from the ONS, making it difficult to assess real-time economic changes. Bailey expressed that while the BoE is not yet at a point to cut rates, it is likely that rate cuts will be necessary in the coming quarters and could be more substantial than the market currently anticipates. These decisions, however, will be data-dependent. Bailey affirmed that the monetary policy is effectively steering inflation towards the target, but he anticipates a potential uptick in inflation in the latter half of the year. Despite the higher than expected wage and service inflation since February, he cautioned against overinterpreting these signals, underscoring the expectation that the secondary effects on domestic wages and prices will diminish quicker than previously thought. The overall outlook suggests a gradual return to normal economic times.

Deputy Governors Dave Ramsden and Ben Broadbent’s Comments:
Deputy Governor Ramsden remarked that there is no contradiction in voting for a rate cut while continuing with quantitative tightening (QT), indicating a nuanced approach to monetary policy adjustment. He noted that the repo market has been functioning well, attributing rising market rates to known factors. Ramsden also mentioned that current money supply data does not provide short-term signals on inflation, suggesting a more cautious interpretation of immediate data. Deputy Governor Broadbent, on the other hand, suggested that while market rate surveys might appear high, they are not necessarily unreasonable. He indicated a preference for focusing more on services inflation than on wages in the short term, highlighting different aspects of inflationary pressures within the economy. Both deputies emphasize a meticulous approach to understanding and reacting to economic indicators, supporting a balanced and data-dependent strategy for future monetary policy decisions.

This article was written by Greg Michalowski at www.forexlive.com. Source