Speaker 1: Bloomberg Audio Studios, podcasts, radio News. Governor, thank you so
Speaker 1: much for speaking to Bloomberg. Now we saw one more
Speaker 1: rates that are moved to the hock side today, the
Speaker 1: Deputy Governor joining those talking about possible cuts if the
Speaker 1: war ends. Is the committee more divided than it was before?
Speaker 2: Well, I wouldn't say that. I think what I would
Speaker 2: say is that we're living in a world of huge uncertainty.
Speaker 2: I mean we've seen this obviously since we sort of
Speaker 2: lasted the conference three months ago. Huge uncertainty around energy prices,
Speaker 2: huge uncertainty of you know, from day to day is
Speaker 2: to wear events in the golf are heading to And
Speaker 2: I think what you're seeing in terms of the the
Speaker 2: vis on the committee and the uncertainty around the views
Speaker 2: on the committee is just that really and that's natural.
Speaker 1: But our reading of the minutes is that five would
Speaker 1: have cut were there no Middle Eastern war. Is that fair?
Speaker 2: Oh? Yeah, I think that's right because I think I
Speaker 2: said a number of times before the conflict broke out
Speaker 2: that I thought it was reasonable to think that they
Speaker 2: probably would be wanted to cut this year. And by
Speaker 2: the way, you know, looking at the inflation numbers, we've
Speaker 2: had subsequently, which obviously are a certain sense, well, at
Speaker 2: least in the initial phase. We're looking backwards. I think
Speaker 2: that they bore out that conclusion.
Speaker 1: Actually, so, how does it change actually what you're expecting
Speaker 1: from now until the end of the year.
Speaker 2: Well, look, there are two things I think that shape
Speaker 2: my thinking. Certainly. One is, obviously is the one that
Speaker 2: shrouded in so much uncertainty, is so where are these
Speaker 2: events in the Gulf going to go to? And then
Speaker 2: the second question is, for any sort of given set
Speaker 2: of events, you know, how are they going to feature
Speaker 2: into domestic inflation. Now we start in a position where
Speaker 2: it's coming lower than we thought it would. We're below
Speaker 2: where we thought we would be if you go back
Speaker 2: to April. But you can't take too strong a message
Speaker 2: from that in terms of second round effects going forwards,
Speaker 2: because frankly, this is a very unprecedented situation.
Speaker 1: Gunnor if you look at market bets, they reduced bets
Speaker 1: on a high in September, we're now around thirty three percent.
Speaker 1: Are you content with that?
Speaker 2: I think, Look, I think the market pricing is sort.
Speaker 3: Of sensible, so there is so that's where you would well,
Speaker 3: I'd say that is because when we survey the market,
Speaker 3: what the market tells us is that the sort of,
Speaker 3: if you like, their central expectation is for no change.
Speaker 2: But then they say, yeah, but there's a risk on
Speaker 2: the upside, and you can see that built into the
Speaker 2: market pricing. And you know, I think that, as I
Speaker 2: said in the press conference, I think that fits with
Speaker 2: the fact that we've got three scenarios. We've got less
Speaker 2: probability attached to any one of them, frankly than we
Speaker 2: probably normally would. But the yeah, but the adverse scenario
Speaker 2: is further away from the center than the lower scenario,
Speaker 2: and the adverse scenario basically, as a scenario, it says
Speaker 2: if this, yeah, if this breakdown of the cease fire
Speaker 2: continues as a permanent thing, then we're going to have
Speaker 2: higher energy prices and that will have an effect.
Speaker 1: But Governor, we've also seen some new language, right, so
Speaker 1: the six members who held rates said the policy strategy
Speaker 1: could change if upside risk inflation would subside. So can
Speaker 1: you tell us a little bit more about that.
Speaker 2: Yes, So, I think if however, we were in a
Speaker 2: position which we were when we started the meetings for
Speaker 2: this round, where the memorandum of understanding and the cease
Speaker 2: far was holding, and we had a crude or price
Speaker 2: I think briefly down to somewhere not much above seventy
Speaker 2: dollars a barrel. It's a bit higher than it was
Speaker 2: before the conflict, but not a lot higher.
Speaker 1: Then.
Speaker 2: Yes, I think we're looking at a different situation now. Sadly,
Speaker 2: of course that hasn't held.
Speaker 1: But that's what very unpredictable at the moment or what
Speaker 1: are you expecting? So it could flip? And what happens
Speaker 1: if it flipped from one to the other.
Speaker 2: Well, I think I think the two there's two things
Speaker 2: going on. So if we got into a situation where
Speaker 2: the cease far is in place again, I don't think
Speaker 2: it's unreasonable to think that when they come down as much,
Speaker 2: we'll see but they come down again. But then the
Speaker 2: problem we've got is the sheer unpredictability of this, because
Speaker 2: it's what we've learned again in the last week, two weeks,
Speaker 2: three weeks.
Speaker 1: Going to your Central projection shows unemployment peaking around five
Speaker 1: point five percent in twenty twenty seven, a right that
Speaker 1: we hadn't seen since twenty fifteen. Week labor market is helping,
Speaker 1: of course, to contain these second round inflation, but at
Speaker 1: what point does it cast in terms of jobs.
Speaker 2: Well, I think we are seeing softness in the labor market.
Speaker 2: We are seeing something of an output gap opening up,
Speaker 2: and that is reflected in the labor market. So I
Speaker 2: think it's exactly consistent with what you say is in
Speaker 2: the projections. Obviously, we don't want to see that happening.
Speaker 2: And one of the things I would say is that
Speaker 2: we don't have a dual mandate, and you know, I
Speaker 2: like our mandate. What our mandate has in it, though,
Speaker 2: is what we call trade off language, which is okay,
Speaker 2: we've had this, We've had another negative supply shock, push
Speaker 2: its prices up, activity down. Our job is to return
Speaker 2: inflation to target. But that language, that trade off language,
Speaker 2: gives us some flexibility. Is over what period we return
Speaker 2: it to. We obviously have to look like carefully things
Speaker 2: like inflation expectations. But it is in our mandate and
Speaker 2: we you know, I think we must use that where
Speaker 2: we think it's appropriate to.
Speaker 1: You've met with a new chancellor. Do you think your
Speaker 1: mandate could change under this Prime Minister.
Speaker 2: I've had no discussions on that at all, So I
Speaker 2: don't think that's anything that we should speculates about and
Speaker 2: have not had that discussion.
Speaker 1: I know you don't like talking about fiscal policy, but
Speaker 1: what does the uncertainty of the budget in autumn mean
Speaker 1: for for the next couple.
Speaker 2: I don't honestly, I don't go into this autumn in
Speaker 2: a different position than I normally do. Or I know
Speaker 2: there's going to be a budget towards the end of
Speaker 2: the autumn, because that's the way the UK cycle works,
Speaker 2: and so we condition our marjority policy decisions on announced
Speaker 2: fiscal policy. We'll do the same again.
Speaker 1: Given do you think the recent data suggests that the
Speaker 1: labor market is actually bottoming out?
Speaker 2: I wouldn't particularly draw that conclusion. I think we're seeing
Speaker 2: a slow softening of the labor market. We're seeing a
Speaker 2: slow disinflation in underlying inflation. I think when I talk
Speaker 2: to films, we've got this one. Was it called sort
Speaker 2: of you know low by a low fire economy going
Speaker 2: on in the UK is not alone and that's by
Speaker 2: any means. You know, this is a this is a
Speaker 2: market where it's sort of turnovers dropping. I think it's therefore,
Speaker 2: and you see a bit of this is a bit
Speaker 2: of the you fund employment story that's really I think
Speaker 2: hard for people trying to get into the labor market,
Speaker 2: there's low low high low fire market is really hard
Speaker 2: if you haven't got a job when you're trying to
Speaker 2: get into the market.
Speaker 1: Is that AI related?
Speaker 2: So I think there's a lot more to this story
Speaker 2: than AI. I think when our agents talk around, Yes,
Speaker 2: I think we're beginning to see a few signs of
Speaker 2: that in certain pockets of the economy, of people looking
Speaker 2: to you to save labor. But it's pretty early stages.
Speaker 1: I think, Governor. Going back to the markets, I mean
Speaker 1: German tenure bunds have fared better than guilds. Would it
Speaker 1: be fair to say that the market seemed to be
Speaker 1: actually punishing guilds for the lack of inflation discipline here.
Speaker 2: Look, I think there's probably many parts of that story.
Speaker 2: The UK is a highly open economy. Your area is
Speaker 2: less open. I think there's there's many parts to that story.
Speaker 2: So I don't think inflation may may or may not
Speaker 2: be one of them, but it's certainly not the only one.
Speaker 1: Governor, Thank you for your time there.
Speaker 2: You're welcome