Bank of England Governor Andrew Bailey on Thursday pushed back against rate hike expectations, saying the market's interest rate curve reflects investors adding a risk premium due to concerns over further rises in energy prices. Speaking to parliament's Treasury Select Committee, Bailey explained that according to the central bank's analysis, investors are pricing in additional tightening that cannot be explained solely by expectations of policy conduct, and that the rate curve inherently contains a risk premium. He also sought to dispel the view that rate hikes are a question of 'when' rather than 'whether', emphasizing that a rate increase is just one possibility depending on economic developments. Bailey noted that the US-Iran war has caused energy prices to surge and they could rise further, indicating upside risks to inflation. Meanwhile, Deputy Governor Dave Ramsden said domestic inflationary pressures are 'relatively subdued' and that he takes comfort from labor market and wage data. External member of the Monetary Policy Committee, Megan Greene, expressed concern that prolonged high oil prices could entrench inflation expectations.
BoE Governor dismisses rate hike expectations, reducing likelihood of higher yields.
