Bank of England (BoE) policymaker Jonathan Haskel said that he is encouraged by signals that Britain’s inflation pressures might be on the wane, but he would need further evidence of a slowdown before altering his view, per Reuters.
Key quotes
“I’m not going to apologize for banging on about persistence because I think we’re right to.”
“The signs that we’ve seen thus far are encouraging. I don’t think we’ve seen quite enough signs yet.”
“But if we accumulate more evidence on persistence, then by the very logic I’ve just set out, I’d be happy to change my vote.”
“To wait a bit longer to accumulate more evidence on that persistence.”
“I can’t really say how many months I want to see. But again, it’s the stress on trying to look at these underlying indicators.”
“I guess the second thing is it’s been a turbulent six years and a lot of ups and downs and Brexit, Liz Truss and all that kind of thing. I’ve got to say the economy, in some ways, has been amazingly resilient.”
Market reaction
These comments had little to no impact on the Pound Sterling’s performance against its rivals. At the time of writing, GBP/USD is trading at 1.2619, gaining 0.01% on the day.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
Source: https://www.fxstreet.com/news/boes-haskel-waiting-for-more-evidence-that-inflation-risks-are-waning-202402090541