Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Governor, thank you so
Speaker 1: much for speaking to us. So you dropped the upside
Speaker 1: inflation skew in May.
Speaker 2: It's now back. How much do you worry about trade
Speaker 2: wars and tariffs?
Speaker 3: So the SKW is a different one now. So we
Speaker 3: had an international skew on before, which was really to
Speaker 3: do with the Middle East. Actually terrible events in the
Speaker 3: Middle East and what could be the economic consequences of them.
Speaker 3: Now I don't for a moment want to underplay, you know, say,
Speaker 3: the terrible events in the Middle East, but the economic
Speaker 3: effects of them have been nothing like what we feared
Speaker 3: they might be or indeed actually what of course history
Speaker 3: sort of would suggested they could be. So as those
Speaker 3: as for now, but we have to watch it very carefully,
Speaker 3: that is, you know, somewhat developed as in a much
Speaker 3: more stable fashion. We've taken that skew out. However, we've
Speaker 3: now had a domestic skew really because we've got one view,
Speaker 3: which is the sort of model, the most likely view,
Speaker 3: which is quite a sort of benign if you like,
Speaker 3: continuation of the process of coming back to the inflation
Speaker 3: target on a sustained basis, but the second view, which says,
Speaker 3: maybe there's some more what I call structural elements to
Speaker 3: this persistent inflation story. Maybe you know, the non accelerating
Speaker 3: rate of unemployments gone up. We don't have strong evidence
Speaker 3: for that, but different mambs of committee got different ways science,
Speaker 3: and so that's the sort of the current skewit, as
Speaker 3: it were. It's a different thing.
Speaker 1: But how much do you worry about public sector wage
Speaker 1: increase in even private sector wage and that's filtering through
Speaker 1: each inflation domestic.
Speaker 3: Well, in our framework, we regard private sector wages as,
Speaker 3: if you like, the leading thing, because they directly affect
Speaker 3: the productive economy. They directly affect the things that go
Speaker 3: the costs that go into inflation. But public sector wages
Speaker 3: are relevant because obviously they can have an effect on
Speaker 3: competition in the labor market, and they can have a
Speaker 3: they have a demand effect because people receive them, and
Speaker 3: they can have something of a signaling effect as well.
Speaker 3: So we do watch them well, it would say, of course,
Speaker 3: is that this, you know, the government's intended settlement of
Speaker 3: the public sector the wage around is actually, as they said,
Speaker 3: very much at the private sector average earning level. We
Speaker 3: will get the full story when we get the budget
Speaker 3: on the thirtieth of October. So when we don't, we're
Speaker 3: not going to take any any more. View. Up until then,
Speaker 3: we did, you know, and we did get a sort
Speaker 3: of prevolial back of an envelope out when the Chancellor
Speaker 3: made the announcement and said, well, obviously you've got to start.
Speaker 3: But there was obviously was an assumption on this settlement
Speaker 3: built into the budget earlier this year, which we've got
Speaker 3: in our forecast. They said, let's look at the increment.
Speaker 3: If you do the sort of mechanical sort of back
Speaker 3: of the envelope, what does it mean for inflation? And
Speaker 3: the answer actually is it's it's that it's a small
Speaker 3: second decimal place number government.
Speaker 1: So what needs to happen for you to cut again?
Speaker 1: Is it actually a surprise to the side on inflation or.
Speaker 3: Just following the fort One of the things we've done today,
Speaker 3: actually one of the important things, is set a sort
Speaker 3: of framework out for how explain how we're thinking about it.
Speaker 3: So I would say two things to your questions. A
Speaker 3: great question One is I think as the answer to
Speaker 3: why did we cut today, Well, we were looking for
Speaker 3: in a sense for sort of confirmatory evidence. We weren't
Speaker 3: looking for something to change necessarily, it was confirmatory evidence
Speaker 3: we had that. I think we have certainly my own
Speaker 3: view as we had that. But we will be looking
Speaker 3: at these this framework and saying, are we seeing this
Speaker 3: sort of rather more benign process which we can sort
Speaker 3: of further confirm, or does this sort of structural issue
Speaker 3: which is why we've put this sort of risk in
Speaker 3: that maybe COVID, for instance, has changed some elements of
Speaker 3: the structure of the economy, which is going to make
Speaker 3: the thing more sort of resistant if you like, to
Speaker 3: measures to get inflation down. And that's the judgment we
Speaker 3: will have to keep coming back to.
Speaker 2: Where do you think rates settle is four percent?
Speaker 3: We don't have a number on it. What I would
Speaker 3: say is this, I think it's reasonable. Don't expect we're
Speaker 3: going back to zero because zero was the product of
Speaker 3: huge global shocks, you know, starting with a financial crisis
Speaker 3: and obviously COVID as well. I think to get there,
Speaker 3: something really bad has to happen that we're not currently expecting.
Speaker 3: So we'll be somewhere someone obviously in between. I think
Speaker 3: current We've made a big point of saying policy is
Speaker 3: currently restrictive, so you can digce from that there will
Speaker 3: be lower than where we are today. But I think
Speaker 3: it's very clear that we're not going.
Speaker 2: Back to zeroment.
Speaker 1: The government has said it will borrow an extra sixteen
Speaker 1: billion pounds this year. Does that change the calculus around rates.
Speaker 3: Well, I'm going to wait for the budgets on the
Speaker 3: thirtieth of October to see the full picture because we
Speaker 3: always condition on, you know, an announced fiscal policy. That's
Speaker 3: what we will see at the end of October and
Speaker 3: we'll we'll sort of put it through the machinery at
Speaker 3: that point.
Speaker 1: The fed DCB the boj or ologistic policy, and that's
Speaker 1: very clear, and it's trying to do some big change
Speaker 1: in for an exchange markets. What are those you know,
Speaker 1: what are those elements are actually important to you? And
Speaker 1: BOE policy.
Speaker 3: Well, we obviously don't have any target for the exchange rates.
Speaker 3: That's all a long way in the past in terms
Speaker 3: of that sort of thinking, but obviously that the exchange
Speaker 3: rate feeds through in terms of financial conditions. We've seen
Speaker 3: some are pre appreciation of Sterling. Since since we did
Speaker 3: the last reports and forecast in May, Starling has appreciated
Speaker 3: we've fed that through as it were, so it changes
Speaker 3: import prices and so on, and that's how we tend
Speaker 3: to look at it. Actually, I would say recently, over
Speaker 3: the last four or five years actually, in the sort
Speaker 3: of transmission and mechanism of much about the exchange rates
Speaker 3: have not played a very large role. And I think
Speaker 3: the reason for that is because we've all been facing
Speaker 3: essentially global shocks. So these are not sort of specific
Speaker 3: shocks that affect one central banquet but not another. We're
Speaker 3: all in the same place.
Speaker 2: Could that change with dollar dynamics.
Speaker 3: Well, it could all. It could all change. I'm not
Speaker 3: predicting any change. I think we have to just keep
Speaker 3: watching that carefully.