WEBVTT - Bank of England Governor Andrew Bailey Talks Interest Rates 0:00:02.440 --> 0:00:08.160 Bloomberg Audio Studios, podcasts, radio news. Governor, thank you so 0:00:08.240 --> 0:00:10.719 much for speaking to us. So you dropped the upside 0:00:10.760 --> 0:00:11.880 inflation skew in May. 0:00:11.920 --> 0:00:14.800 It's now back. How much do you worry about trade 0:00:14.840 --> 0:00:15.800 wars and tariffs? 0:00:16.200 --> 0:00:18.480 So the SKW is a different one now. So we 0:00:18.760 --> 0:00:21.480 had an international skew on before, which was really to 0:00:21.520 --> 0:00:23.520 do with the Middle East. Actually terrible events in the 0:00:23.520 --> 0:00:26.080 Middle East and what could be the economic consequences of them. 0:00:26.120 --> 0:00:29.280 Now I don't for a moment want to underplay, you know, say, 0:00:29.280 --> 0:00:31.200 the terrible events in the Middle East, but the economic 0:00:31.200 --> 0:00:34.600 effects of them have been nothing like what we feared 0:00:34.600 --> 0:00:36.760 they might be or indeed actually what of course history 0:00:36.800 --> 0:00:40.520 sort of would suggested they could be. So as those 0:00:41.120 --> 0:00:43.320 as for now, but we have to watch it very carefully, 0:00:43.360 --> 0:00:47.000 that is, you know, somewhat developed as in a much 0:00:47.040 --> 0:00:52.640 more stable fashion. We've taken that skew out. However, we've 0:00:52.680 --> 0:00:55.680 now had a domestic skew really because we've got one view, 0:00:55.680 --> 0:00:57.920 which is the sort of model, the most likely view, 0:00:57.960 --> 0:01:03.240 which is quite a sort of benign if you like, 0:01:03.320 --> 0:01:08.680 continuation of the process of coming back to the inflation 0:01:08.760 --> 0:01:13.520 target on a sustained basis, but the second view, which says, 0:01:14.200 --> 0:01:17.240 maybe there's some more what I call structural elements to 0:01:17.319 --> 0:01:22.039 this persistent inflation story. Maybe you know, the non accelerating 0:01:22.120 --> 0:01:27.840 rate of unemployments gone up. We don't have strong evidence 0:01:27.880 --> 0:01:30.759 for that, but different mambs of committee got different ways science, 0:01:31.080 --> 0:01:34.000 and so that's the sort of the current skewit, as 0:01:34.000 --> 0:01:34.959 it were. It's a different thing. 0:01:35.240 --> 0:01:38.199 But how much do you worry about public sector wage 0:01:38.360 --> 0:01:40.960 increase in even private sector wage and that's filtering through 0:01:40.959 --> 0:01:42.399 each inflation domestic. 0:01:42.120 --> 0:01:46.000 Well, in our framework, we regard private sector wages as, 0:01:46.080 --> 0:01:48.800 if you like, the leading thing, because they directly affect 0:01:48.800 --> 0:01:51.360 the productive economy. They directly affect the things that go 0:01:51.520 --> 0:01:55.000 the costs that go into inflation. But public sector wages 0:01:55.040 --> 0:01:57.480 are relevant because obviously they can have an effect on 0:01:58.040 --> 0:01:59.920 competition in the labor market, and they can have a 0:02:00.160 --> 0:02:02.400 they have a demand effect because people receive them, and 0:02:02.440 --> 0:02:04.400 they can have something of a signaling effect as well. 0:02:04.480 --> 0:02:07.040 So we do watch them well, it would say, of course, 0:02:07.160 --> 0:02:11.360 is that this, you know, the government's intended settlement of 0:02:11.400 --> 0:02:16.160 the public sector the wage around is actually, as they said, 0:02:16.280 --> 0:02:22.000 very much at the private sector average earning level. We 0:02:22.040 --> 0:02:23.880 will get the full story when we get the budget 0:02:23.960 --> 0:02:26.079 on the thirtieth of October. So when we don't, we're 0:02:26.080 --> 0:02:28.600 not going to take any any more. View. Up until then, 0:02:29.120 --> 0:02:31.160 we did, you know, and we did get a sort 0:02:31.160 --> 0:02:34.760 of prevolial back of an envelope out when the Chancellor 0:02:35.000 --> 0:02:37.160 made the announcement and said, well, obviously you've got to start. 0:02:37.200 --> 0:02:39.200 But there was obviously was an assumption on this settlement 0:02:39.240 --> 0:02:41.600 built into the budget earlier this year, which we've got 0:02:41.600 --> 0:02:43.679 in our forecast. They said, let's look at the increment. 0:02:45.440 --> 0:02:47.880 If you do the sort of mechanical sort of back 0:02:47.919 --> 0:02:49.840 of the envelope, what does it mean for inflation? And 0:02:49.880 --> 0:02:52.760 the answer actually is it's it's that it's a small 0:02:54.160 --> 0:02:56.320 second decimal place number government. 0:02:56.400 --> 0:02:58.080 So what needs to happen for you to cut again? 0:02:58.440 --> 0:03:01.359 Is it actually a surprise to the side on inflation or. 0:03:01.320 --> 0:03:04.320 Just following the fort One of the things we've done today, 0:03:04.360 --> 0:03:05.919 actually one of the important things, is set a sort 0:03:05.919 --> 0:03:09.000 of framework out for how explain how we're thinking about it. 0:03:09.639 --> 0:03:11.519 So I would say two things to your questions. A 0:03:11.560 --> 0:03:14.640 great question One is I think as the answer to 0:03:14.639 --> 0:03:17.160 why did we cut today, Well, we were looking for 0:03:17.360 --> 0:03:20.760 in a sense for sort of confirmatory evidence. We weren't 0:03:20.760 --> 0:03:23.639 looking for something to change necessarily, it was confirmatory evidence 0:03:24.000 --> 0:03:25.880 we had that. I think we have certainly my own 0:03:25.919 --> 0:03:28.560 view as we had that. But we will be looking 0:03:28.560 --> 0:03:32.120 at these this framework and saying, are we seeing this 0:03:32.160 --> 0:03:35.320 sort of rather more benign process which we can sort 0:03:35.360 --> 0:03:38.880 of further confirm, or does this sort of structural issue 0:03:38.920 --> 0:03:40.960 which is why we've put this sort of risk in 0:03:41.440 --> 0:03:45.040 that maybe COVID, for instance, has changed some elements of 0:03:45.120 --> 0:03:47.720 the structure of the economy, which is going to make 0:03:47.760 --> 0:03:50.640 the thing more sort of resistant if you like, to 0:03:52.120 --> 0:03:54.440 measures to get inflation down. And that's the judgment we 0:03:54.480 --> 0:03:55.640 will have to keep coming back to. 0:03:56.120 --> 0:03:59.240 Where do you think rates settle is four percent? 0:04:01.120 --> 0:04:03.160 We don't have a number on it. What I would 0:04:03.160 --> 0:04:08.280 say is this, I think it's reasonable. Don't expect we're 0:04:08.280 --> 0:04:10.960 going back to zero because zero was the product of 0:04:11.120 --> 0:04:13.880 huge global shocks, you know, starting with a financial crisis 0:04:13.880 --> 0:04:17.680 and obviously COVID as well. I think to get there, 0:04:18.000 --> 0:04:20.760 something really bad has to happen that we're not currently expecting. 0:04:22.120 --> 0:04:25.400 So we'll be somewhere someone obviously in between. I think 0:04:25.839 --> 0:04:28.040 current We've made a big point of saying policy is 0:04:28.040 --> 0:04:30.160 currently restrictive, so you can digce from that there will 0:04:30.160 --> 0:04:31.760 be lower than where we are today. But I think 0:04:31.760 --> 0:04:33.120 it's very clear that we're not going. 0:04:33.000 --> 0:04:35.000 Back to zeroment. 0:04:35.040 --> 0:04:37.000 The government has said it will borrow an extra sixteen 0:04:37.000 --> 0:04:40.400 billion pounds this year. Does that change the calculus around rates. 0:04:40.640 --> 0:04:42.760 Well, I'm going to wait for the budgets on the 0:04:42.760 --> 0:04:46.640 thirtieth of October to see the full picture because we 0:04:46.640 --> 0:04:50.279 always condition on, you know, an announced fiscal policy. That's 0:04:50.320 --> 0:04:51.880 what we will see at the end of October and 0:04:51.920 --> 0:04:54.120 we'll we'll sort of put it through the machinery at 0:04:54.160 --> 0:04:54.640 that point. 0:04:55.200 --> 0:04:58.159 The fed DCB the boj or ologistic policy, and that's 0:04:58.240 --> 0:04:59.960 very clear, and it's trying to do some big change 0:05:00.080 --> 0:05:03.200 in for an exchange markets. What are those you know, 0:05:03.240 --> 0:05:05.479 what are those elements are actually important to you? And 0:05:05.560 --> 0:05:06.440 BOE policy. 0:05:07.520 --> 0:05:11.600 Well, we obviously don't have any target for the exchange rates. 0:05:11.040 --> 0:05:14.359 That's all a long way in the past in terms 0:05:14.360 --> 0:05:17.279 of that sort of thinking, but obviously that the exchange 0:05:17.320 --> 0:05:19.880 rate feeds through in terms of financial conditions. We've seen 0:05:19.920 --> 0:05:23.880 some are pre appreciation of Sterling. Since since we did 0:05:23.880 --> 0:05:27.640 the last reports and forecast in May, Starling has appreciated 0:05:27.680 --> 0:05:29.960 we've fed that through as it were, so it changes 0:05:29.960 --> 0:05:32.839 import prices and so on, and that's how we tend 0:05:32.839 --> 0:05:36.560 to look at it. Actually, I would say recently, over 0:05:36.560 --> 0:05:39.080 the last four or five years actually, in the sort 0:05:39.120 --> 0:05:42.159 of transmission and mechanism of much about the exchange rates 0:05:42.160 --> 0:05:44.720 have not played a very large role. And I think 0:05:44.720 --> 0:05:46.599 the reason for that is because we've all been facing 0:05:46.680 --> 0:05:50.240 essentially global shocks. So these are not sort of specific 0:05:50.279 --> 0:05:53.440 shocks that affect one central banquet but not another. We're 0:05:53.480 --> 0:05:54.920 all in the same place. 0:05:55.600 --> 0:05:57.920 Could that change with dollar dynamics. 0:05:58.520 --> 0:06:00.760 Well, it could all. It could all change. I'm not 0:06:00.800 --> 0:06:03.640 predicting any change. I think we have to just keep 0:06:03.640 --> 0:06:05.160 watching that carefully.