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Bank of England Inflation and interest rates.

 Andrew Bailey, the Bank of England (BoE) governor, has voiced his concern about the UK's rising inflation, admitting that he is "very uneasy about the situation". 

"I am very uneasy about the inflation situation… I want to be very clear on that." He pointed to weaker growth on one side and rising inflation on the other, amid ongoing supply disruptions and an energy crisis that dampened recovery and pushed inflation even higher. "It is not, of course, where we want it to be to have inflation above target."

UK inflation stood at 3.1% in September, above the Bank's 2% target, and is expected to keep climbing to as much as 5% by next April.

The UK's main interest rate has been at an all-time low of 0.1% since the pandemic began, having been set at 0.75% pre-pandemic. On 4 November, the MPC voted by a majority of 7-2 to maintain the Bank rate despite widespread anticipation that it would increase the rate to 0.25%. 

    Bailey faced questions about Threadneedle Street's latest economic forecasts and why the Monetary Policy Committee (MPC) kept UK interest rates at its current historic low of 0.1% earlier this month. A rise to 0.25% would have been the second-lowest rate the Bank has ever set.

Analysts have said that they expect the rate to be hiked to pre-pandemic levels in the next 18 months as the economy resumes a more steady course. However, the move prompted some to brand Bailey as the "unreliable boyfriend" — a moniker shared by his predecessor Mark Carney, who faced criticism over his "forward guidance" policies.

 On Monday, Bailey said the decision of the MPC was "very finely balanced", but that there was not enough clear evidence on what had happened to the labour market in the wake of the end of the government's furlough scheme. He said it was a very close call for him personally to vote to leave rates on hold. 

   "I felt that on balance for me there was something to be said for waiting to see this evidence on the labour market from the official data which we will start to get tomorrow, interestingly."

The BoE governor was joined by Huw Pill, the Bank's chief economist, and external MPC members Michael Saunders and Dr Catherine Mann.

Saunders, one of the MPC's more hawkish members, who voted for an increase in interest rates at the recent meeting, said a recent survey showed that the "vast bulk" of those on furlough are now back in work. He also highlighted a survey by the Recruitment and Employment Confederation (REC) that showed wages for new hires in the UK are continuing to climb, adding that unemployment is now likely to come in slightly lower than the Bank's forecasts. 

Meanwhile, Mann said one of the crucial points in the labour markets was whether firms could pass on their increased wage costs to customers. But Bailey played down comparisons of the labour market with the 1970s, saying it is "substantially different today than it was" then. 

   Pill defended the Bank's 7-2 split, saying it was a "healthy reflection of the system's strength".

Summarised www.sba.tax




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