Central Bank of England signals “moderate monetary tightening in coming months”

Bank of England (BoE) Governor Andrew Bailey said that “a further moderate monetary tightening will likely be appropriate in the coming months” if the UK economy follows the path expected by the British central bank.

During a press conference that followed the decision to raise interest rates to 0.50% a year, Bailey warned that it would be a mistake to “extend” today’s high and expect the rate to enter a “long upward trajectory”.

According to the central banker, the interest rate hike carried out this Thursday (3) aims to control inflation, even in a scenario of moderation of economic growth in the United Kingdom during the impact caused by the Omicron variant of the coronavirus, which it should, however, be “limited and short,” according to Bailey.

“Rates are necessary as inflation is unlikely to return to the 2% per year target by itself,” he explained.

He pointed out that global prices for energy, imports and the tight labor market in the country are the main causes of high inflation, and today’s decision was not “demand driven”, as it usually is when interest rates are high.

The risks linked to global inflation threaten to become “rooted” in the British economy, warned the leader, citing the impact of rising prices on income and wages.

“Wage level is expected to grow another 4.75% in 2022, before moderating,” Bailey said, after noting that companies are passing on higher employment costs. According to him, inflation will only dissipate when global energy prices stabilize.

The official also warned that there is an above-normal level of uncertainty regarding the economic outlook.