BoE's Bailey: More Rate Hikes are Incoming

Above: Governor Andrew Bailey. Image copyright Pound Sterling Live, courtesy of Parliament.tv

Bank of England Governor Andrew Bailey told UK lawmakers he and colleagues remain concerned with the trajectory of UK inflation and that they stand ready to act, cementing expectations for another interest rate rise in early February.

In an appearance before Parliament's Treasury Select Committee, Bailey said the Bank's regional agents report they are seeing some evidence of second-round inflation effects.

He says there is a concern of "second round effects" on wages from both rising inflation and a "tight" jobs market.

This is a signal that rising inflation in the UK is no longer being caused by external factors - such as oil and global supply chain bottlenecks - but by home-grown issues, which the Bank can address via monetary policy.

In fact Bailey said his concerns that inflation would be stoked by the state of the labour market in part influenced his decision to raise interest rates in December.

It was reported Tuesday the UK added 184K employees to the payroll in December said the ONS, beating analyst expectations for a rise of 120K. This makes for a rise of 1,340,000 payrolled employees (+4.8%) compared with December 2020.

Bailey says the labour market is "very tight" in terms of supply, i.e. there are too few applicants chasing the 1.2 million+ vacancies.

This inevitably puts upward pressure on wages, which in creates a positive feedback loop for inflation.

He added the Bank "can and will do" everything it can to control inflation.

The market is currently pricing a ~90% chance of a February rate hike at the Bank, odds that rose in the wake of ONS data out Wednesday that showed UK inflation reached a 30-year high in December 2021.