- Choosing to keep the bank rate unchanged is not a negative choice
- It is a deliberate action to decide to keep interest rates as they are
- The Bank of England does not want to limit itself to interest rates, and needs to remain flexible
- We stressed that we are ready to act if necessary
- The Council’s opinions differed about the effects of the second round
Bell was the only dissenter who wanted to raise the bank rate to 4.00%, but he was not very pressing in his case from the comments above. It’s mostly a rehash of what Governor Bailey said yesterday. So, I’ll leave this clip from Bill himself to justify his vote for the bank rate hike from the previous day:
“Events in the Gulf have left the outlook for global energy prices higher and more uncertain. This uncertainty is unlikely to dissipate soon, but it is nevertheless clear that rising energy prices represent an inflationary shock to the UK economy. The second-round price and wage-setting effects of this shock have the potential to lift UK inflation beyond the near term in a sustained manner. Our scenarios show how a strong driver of inflation may lead to strengthening second-round effects. But I see the risk of second-round effects in each of these and I recognize that the second-round effects may be more “Modest in a more flexible labor market, but structural change in price and wage determination, and the impact on inflation expectations as a result of increased attention to energy and food prices, may enhance the second-round effects beyond what is envisioned in these scenarios to price stability resulting from the re-emergence of sustained core inflation.”
