BoE Governor Bailey suggest UK interest rates will peak at 4.5%

(Alliance News) - Bank of England Governor Andrew Bailey indicated that the UK bank rate is likely to peak at 4.5%, up from the current level of 3.5%, the BusinessLive Wales reported on Thursday.

In a visit to South Wales ahead of the next Monetary Policy Committee meeting on February 2, Bailey said that UK inflation remains on track to fall rapidly this spring, but that the country's tight labour market still could cause problems, the website reported.

Bailey noted that market expectations for peak UK interest rates have been cut back since the market turmoil in September and October caused by the mini-budget under former prime minister Liz Truss.

"If you go back to the height of that period, the peak of what the market thought we were going to get to was over 6%, but the time we did our forecast in November it was 5.2%, it is now down to 4.5%," Bailey said, according to BusinessLive Wales.

"Now I am not endorsing 4.5%, but what you may have noticed in December is that we did not include the comment that we made in November about the market being in our view rather out of line."

However, the UK labour market remains a threat to inflation expectations, Bailey said, according to the news website, published by Reach PLC.

"We have had this quite unprecedented and quite unique fall in the labour force. If you compare it to pre-Covid to now, it is at least half a million actually," Bailey said.

"Unemployment has ticked up a little bit, but it is still at historically low levels, but we have had a rise in inactivity and the labour force has shrunk, and that is putting pressure on the labour market."

https://www.business-live.co.uk/economic-development/bank-england-governor-andrew-bailey-26017678

On Wednesday, the Office for National Statistics said the UK consumer price index rose annually by 10.5% in December, slowing from a 10.7% rise in November. The inflation print was down from a four-decade high of 11.1% in October.

However, core inflation - which excludes energy, food, alcohol, and tobacco - remained unchanged a 6.3%.

In December, the BoE under Bailey raised UK interest rates by 50 basis point to 3.5% in an attempt to return inflation to its 2% target.

By Tom Waite, Alliance News editor

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