Bank Of England Chief Bailey Signals Further Rate Hikes

Bank of England Governor Andrew Bailey said further increase in the interest rate might be required to achieve the UK inflation target on a sustainable basis.

At Brunswick Group’s Cost of Living Conference in London, Bailey said, “Some further increase in Bank Rate may turn out to be appropriate, but nothing is decided.”

“The incoming data will add to the overall picture of the economy and the outlook for inflation, and that will inform our policy decisions,” the banker said.

Bailey cautioned against suggesting either that the bank is done with increasing Bank Rate, or that policymakers will inevitably need to do more.

The BoE has raised its benchmark interest rate by 390 basis points since the current tightening cycle began in December 2021.

The governor said that the British economy evolved much as expected since the February meeting. Inflation has been slightly weaker, and activity and wages slightly stronger, with emphasize on “slightly” in both cases, Bailey said.

Data from the central bank showed on Wednesday that mortgage approvals declined for the fifth consecutive month in January. Home loan approvals fell to 39,600 in January from 40,500 in December.

If the onset of the Covid-19 pandemic and the period immediately thereafter is excluded, this was the lowest approvals since January 2009, the BoE said.

The ‘effective’ interest rate, the actual interest rate paid on newly drawn mortgages increased by 21 basis points, to 3.88 percent in January.

Mortgage lending to individuals decreased to GBP 2.5 billion in January from GBP 3.1 billion in the previous month.

Further, consumer credit doubled to GBP 1.6 billion from GBP 0.8 billion in December. The GBP 1.6 billion was split between GBP 1.1 billion of borrowing on credit cards and GBP 0.5 billion of borrowing through other forms of consumer credit.

The big picture remains that in the current higher mortgage rate environment, house prices are still too high for mortgage lending to recover, Capital Economics’ economist Andrew Wishart said.

Nationwide house price data released earlier in the day showed that house prices registered the first annual fall since June 2020, which was also the worst in a decade.

As squeeze on household income from higher interest rates and inflation damped demand in the property market, house prices declined 1.1 percent on a yearly basis in February, offsetting the 1.1 percent increase in January.

Elsewhere, data published by the British Retail Consortium showed that shop price inflation hit a new record in February. Shop prices increased 8.4 percent year-on-year after an 8.0 percent increase in January.

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