Bank of England Can Tolerate Inflation Above 2% to Support Weak UK Economy, Bailey Says
Bank of England Governor Andrew Bailey said the central bank could tolerate inflation temporarily staying above its 2% target to support the UK's weak economy, citing softness in activity and uncertainty around the Iran war shock. He added that expected cuts have been taken off the table for now and that policy has already been tightened considerably relative to what markets had expected in response to the shock.
Bailey said that tolerance for above-target inflation would weaken if signs of second-round effects begin to emerge, and warned that protracted indirect effects could keep consumer-price inflation above target. The remarks set out the BOE's policy trade-off between supporting a soft economy and preventing a temporary inflation overshoot from becoming more persistent.
From the sources (8 posts)
@businessThe Bank of England could tolerate inflation temporarily staying above its 2% target in order to support the UK’s weak economy, Governor Andrew Bailey said
@financialjuiceBoE Gov. Bailey: We have to monitor the situation in the Middle East and how it affects the UK economy and inflation very closely and adjust policy as required
@financialjuiceBoE Gov. Bailey: Having taken expected cuts off the table for now, we have already tightened policy considerably in response to the shock relative to what had been expected by markets.
@financialjuiceBoE's Bailey: Softness in the economy and uncertainty around the Iran war shock means tolerating temporarily above target inflation is an appropriate way to approach the policy trade-off
@financialjuiceBoE Gov. Bailey: There is a case for tolerating temporarily above target inflation
@financialjuiceBoE Gov. Bailey: Protracted indirect effects could keep CPI above target
@financialjuiceBoE's Bailey: But that tolerance would weaken if signs of second-round effects begin to emerge
@shropshirestarBank of England can tolerate inflation above 2% target, says Bailey