Andrew Bailey has said that the Bank of England could stop giving central bank policy guidance ahead of meetings after he was accused of being an unreliable boyfriend over comments he made before the last vote on interest rates.
The Bank governor told a House of Lords committee yesterday that scrapping the type of forward guidance deployed by Mark Carney, his predecessor, was “not off the table by any means”. He said that it was “very well trodden ground” for the monetary policy committee, which votes on interest rates.
Bailey was accused of being an “unreliable boyfriend” after raising the spectre of a rise in interest rates in October before this month’s meeting. It was a jibe originally aimed at Carney after allegations of flip-flopping on interest rates. Financial markets were surprised when seven of the Bank’s nine rate-setters, including Bailey, opted to wait for more jobs market data before raising borrowing costs from the historic low of 0.1 per cent.
Bailey told the committee that he had become concerned over the summer that markets were taking the position that central banks would not react to the increase in inflation. “Anybody who thinks that we are not in the price stability business and we won’t react is wrong,” he said. He denied giving guidance that the committee would raise interest rates at the November 4 meeting, “because that obviously is a judgment for the MPC, meeting by meeting”.
Labour shortages and wage inflation have become the biggest concerns of Bank of England policymakers, who are expected to focus on the issue when they meet next month to decide on interest rates. Investors reckon on a 90 per cent chance of a rise in December.
Bailey said: “The labour market is very tight and this is the thing that concerns me most and will be, I can tell you, the focus I’m sure of our meeting when we have it in three months time.”
Jonathan Haskel, a Bank policymaker, warned in a speech to students at the University of Glasgow’s Adam Smith Business School that wages could grow faster than productivity and push up wages. “From a living standards point of view, this is of course excellent news, but from an inflation point of view this has to be matched by increased productivity and so we have to be vigilant,” he said. Both Bailey and Haskel said that they were less worried about rising energy and shipping costs, which they expect to be transitory.
Bailey cited a rise in the number of people who did not have jobs and were not searching, and a rise in public sector employment. “The primary thing that businesses talk about is the problem of hiring at the moment,” he said. The number of job vacancies hit a record high of 1.1 million in the three months to September, according to the Office for National Statistics.
The Bank governor defended the committee’s decision not to bring forward a stop to quantitative easing. The central bank has been buying gilts for more than a decade since the financial crisis to keep yields low and trading orderly. It is due to stop next month.
He said that he did not want people to lose trust in the Bank’s commitments to a fixed amount of quantitative easing. “I did not think it was sensible to breach that policy we’ve had and that approach that we’ve had for the future,” he said.