The Bank of England must find the delicate balance between maintaining its rates and risking seeing inflation get worse and going up and weighing on the British economy, noted Thursday its governor Andrew Bailey.
We are in a period of unprecedented shocks and we are looking for a very precise balance between inflation and the risk of recession, the war in Ukraine and the surge in energy prices following the crisis caused by the Covid-19 pandemic. , he underlined during a conference organized for the Peterson Institute for International Economics (PIIE).
The shock to real incomes, which will fall due to inflation, will slow growth, the question is whether this will be transferred to the labor market, Mr Bailey added.
Inflation reached 7% over one year in February in the United Kingdom, notably driven up by the price of petrol, and weighs particularly on the income of the less well-off.
And British employers are struggling to find workers, which could push them to raise the wages offered and risk allowing inflation to take hold for a longer period of time.
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It is difficult to know the size of the labor market, but there is no doubt that it has shrunk, and almost impossible to know what is attributable to Covid-19 and Brexit, he believes.
He also refused to comment on the future monetary policy of the BoE, where the US Federal Reserve (Fed) has clearly signaled that it will tighten its policy rapidly in the coming months.
Earlier in the day, another member of the Bank of England’s Monetary Committee, Catherine Mann, said she wondered if a hike of more than a quarter point would be needed when they next meet on May 5. .