The govenor of the Bank of England has hit out at claims he U-turned on plans to raise interest rates at last week's monetary policy committee meeting.
Speaking to the Treasury Committee today (November 15), Andrew Bailey was asked if the UK's central bank was an "unreliable boyfriend".
The term was previously thrown at Bailey's predecessor Mark Carney when he repeatedly hinted at interest rate rises but never followed through.
Bailey said his statement from October that the BoE would “have to act”, which was seen by many as an indication of an incoming rates rise, was a “deliberately conditional statement”.
“I said...if we saw a de-anchoring of medium term inflation or expectations, that we would have to act, and that we will act.
“I did not say therefore we will be raising rates in November.
“We [the BoE] would never say that, because that’s obviously an unconditional statement and we make policy meeting by meeting.”
At the end of October, Bailey told the G30 Annual International Banking Seminar that central banks must act if they see a risk to medium term inflation.
His comments were widely seen as a hint of a forthcoming rise in interest rates, but these expectations were confounded at the start of this month when the MPC voted by 7-2 to keep rates at their historic low of 0.1 per cent.
Bailey added that he thought it critical to put his “foot down” and re-emphasise the Bank’s main goal, which is to maintain inflation at 2 per cent.
“I'm concerned that there is a view in some quarters that we’ve gone off that and never admitted it," he said.
Bailey added: “We have reached a situation with some commentators where they believe that central banks, faced with a choice between supporting activity or meeting the inflation target, always choose the former.
“That's not true.”
Uneasy about inflation
The govenor told the committee that he was “very uneasy” about the rising inflation in the UK.
Bailey said the decision not to increase rates at the start of the month was a close call, but that he was waiting for more information around the impact of the end of the furlough scheme before deciding whether or not to act.
“[The rebalancing of supply and demand pressures] is happening, but it’s not happening as rapidly as we thought it would,” he said, adding that supply bottlenecks were weighing on growth, especially since the summer.
“Against that, inflation has picked up further, and the largest single reason why...is in the energy price sector, but it’s also evidently coming from traded global goods prices as well.”
On their own, he said, these individual pressures would cause temporary inflation.
“The risk for us is that we also see that in this recovery the output gap is approaching being closed, and the labour market in particular looks tight.”