Andrew Bailey on BOE's ‘Finely Balanced' Rate Cut

Bloomberg

3 days ago

00:00
The split has the markets a little bit in a tiff. Is it really an indication of policy going forward? I think the voting is a very good reflection of the finely balanced decision. I don't, my message to markets is don't take it, in a sense, don't read more into it than that. It's a reflection of how finely balanced this decision is. Now, what does that mean? You're going to say, Well, yeah, we've got risks on both sides. So we were always expecting we were going to see this rise in inflation. It's it's not a big one, but we're expecting to see it. It's a little bit bigger than we thought it would be. So we have to be very focused on all that going to be consequentials from that. On the other hand, I think the labour market is softening. Pay has come in a bit below where we thought it would be, and that's the downside risk. You know, is that going to posture in the context is one of softer conditions, weaker inflation and we're balancing that. And so different members take different positions. And I always encourage that. And the only the only thing I do insist on which we've done is obviously that we reach a decision which we've done. Of course we've done that. But that's the point. I mean, I think the balance of views is a very accurate reflection of how finely balanced it is. But has the MPC ever been so divided? We've actually never had to be in this situation of having to have two votes to produce the majority. Absolutely fine, we can do that. You know, not difficult. But again, I think it's a reflection of just how finely balanced the situation. So my message to markets is this is a very finely balanced situation. But finely balanced or complicated? Well, I think I think it's finely balanced. I mean, you might say that there's a lot there's a lot of things going on under the surface in terms of influences on it, but it is finely balanced. Investors are markets are pushing back almost to actually no cuts this year. Could that make sense to you? Well, I think the fact that pricing is now, you know, more sort of 5050 going forward, I think is a reflection of the fine balance. So that doesn't surprise me. But you're happy with that? There's not that. Well, I try to avoid pronouncing pronouncing and that's a slightly grand scale. But look, I think if we say if we say something is finely balanced, I'm not surprised when you see that outcome. That's the best way I can put it. I mean, when you look at, you know, the cycle, are we starting to approach the end of the easing cycle? I think the path is still downwards. And over over time, I think there's more uncertainty about the sorts of, you know, step by step. Yeah, exactly what exactly when the steps are taken, put it that way. Are you expecting a stabilisation when it comes to the labour markets? It was April, the worst of it because of some of the things that the government put in place. Well, what we've seen in the last since May, when we were when we did the last March policy report, is we actually haven't seen a lot of news on activity in the outlook for activity. What we have seen as actually pay increases come in a bit below where we thought they would be. Now, given that we were starting from a level where they were considerably above obviously any level that's consistent with the inflation target, the fact that that is happening obviously is welcome news. But that's the context in which we, you know, the good part of the context in which we have to reach the judgment. So how do you look at the labour market over the next couple of months? Well, we think, you know, interestingly, our agents around the country who did that, they do an annual pay settlement survey at the beginning of the year. So at the beginning of this year, they said they thought it would come in around about 3.7 as the sort of the middle the middle of it. And we think it's actually pretty much on course for that inflation, talking about inflation and the possibility of second round effects given all of the tariff turmoil that we're seeing in August. So, yes, I mean, there's obviously a vast amount of news being generated in the world economy at the moment, and we have to factor that in. However, having said that, actually, you know, deliberations, I can say to you is that it was the domestic situation that was more important. Now, that's not because I'm in any sense relaxed in any sense, dismissing the whole tariff issue. It's important. And by the way, I mean, know, we've obviously had the news that we've had since May means that the sort of average tariffs level is a bit lower than we thought it would be in May, but it's still well above, obviously, where it's been in history.