WEBVTT - Bank of England Governor Andrew Bailey Talks UK Labor, Interest Rates

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio News. Governor, thank you so

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<v Speaker 1>much for speaking to Bloomberg. Now we saw one more

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<v Speaker 1>rates that are moved to the hock side today, the

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<v Speaker 1>Deputy Governor joining those talking about possible cuts if the

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<v Speaker 1>war ends. Is the committee more divided than it was before?

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<v Speaker 2>Well, I wouldn't say that. I think what I would

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<v Speaker 2>say is that we're living in a world of huge uncertainty.

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<v Speaker 2>I mean we've seen this obviously since we sort of

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<v Speaker 2>lasted the conference three months ago. Huge uncertainty around energy prices,

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<v Speaker 2>huge uncertainty of you know, from day to day is

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<v Speaker 2>to wear events in the golf are heading to And

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<v Speaker 2>I think what you're seeing in terms of the the

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<v Speaker 2>vis on the committee and the uncertainty around the views

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<v Speaker 2>on the committee is just that really and that's natural.

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<v Speaker 1>But our reading of the minutes is that five would

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<v Speaker 1>have cut were there no Middle Eastern war. Is that fair?

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<v Speaker 2>Oh? Yeah, I think that's right because I think I

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<v Speaker 2>said a number of times before the conflict broke out

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<v Speaker 2>that I thought it was reasonable to think that they

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<v Speaker 2>probably would be wanted to cut this year. And by

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<v Speaker 2>the way, you know, looking at the inflation numbers, we've

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<v Speaker 2>had subsequently, which obviously are a certain sense, well, at

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<v Speaker 2>least in the initial phase. We're looking backwards. I think

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<v Speaker 2>that they bore out that conclusion.

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<v Speaker 1>Actually, so, how does it change actually what you're expecting

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<v Speaker 1>from now until the end of the year.

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<v Speaker 2>Well, look, there are two things I think that shape

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<v Speaker 2>my thinking. Certainly. One is, obviously is the one that

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<v Speaker 2>shrouded in so much uncertainty, is so where are these

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<v Speaker 2>events in the Gulf going to go to? And then

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<v Speaker 2>the second question is, for any sort of given set

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<v Speaker 2>of events, you know, how are they going to feature

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<v Speaker 2>into domestic inflation. Now we start in a position where

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<v Speaker 2>it's coming lower than we thought it would. We're below

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<v Speaker 2>where we thought we would be if you go back

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<v Speaker 2>to April. But you can't take too strong a message

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<v Speaker 2>from that in terms of second round effects going forwards,

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<v Speaker 2>because frankly, this is a very unprecedented situation.

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<v Speaker 1>Gunnor if you look at market bets, they reduced bets

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<v Speaker 1>on a high in September, we're now around thirty three percent.

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<v Speaker 1>Are you content with that?

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<v Speaker 2>I think, Look, I think the market pricing is sort.

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<v Speaker 3>Of sensible, so there is so that's where you would well,

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<v Speaker 3>I'd say that is because when we survey the market,

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<v Speaker 3>what the market tells us is that the sort of,

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<v Speaker 3>if you like, their central expectation is for no change.

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<v Speaker 2>But then they say, yeah, but there's a risk on

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<v Speaker 2>the upside, and you can see that built into the

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<v Speaker 2>market pricing. And you know, I think that, as I

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<v Speaker 2>said in the press conference, I think that fits with

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<v Speaker 2>the fact that we've got three scenarios. We've got less

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<v Speaker 2>probability attached to any one of them, frankly than we

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<v Speaker 2>probably normally would. But the yeah, but the adverse scenario

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<v Speaker 2>is further away from the center than the lower scenario,

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<v Speaker 2>and the adverse scenario basically, as a scenario, it says

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<v Speaker 2>if this, yeah, if this breakdown of the cease fire

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<v Speaker 2>continues as a permanent thing, then we're going to have

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<v Speaker 2>higher energy prices and that will have an effect.

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<v Speaker 1>But Governor, we've also seen some new language, right, so

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<v Speaker 1>the six members who held rates said the policy strategy

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<v Speaker 1>could change if upside risk inflation would subside. So can

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<v Speaker 1>you tell us a little bit more about that.

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<v Speaker 2>Yes, So, I think if however, we were in a

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<v Speaker 2>position which we were when we started the meetings for

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<v Speaker 2>this round, where the memorandum of understanding and the cease

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<v Speaker 2>far was holding, and we had a crude or price

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<v Speaker 2>I think briefly down to somewhere not much above seventy

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<v Speaker 2>dollars a barrel. It's a bit higher than it was

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<v Speaker 2>before the conflict, but not a lot higher.

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<v Speaker 1>Then.

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<v Speaker 2>Yes, I think we're looking at a different situation now. Sadly,

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<v Speaker 2>of course that hasn't held.

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<v Speaker 1>But that's what very unpredictable at the moment or what

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<v Speaker 1>are you expecting? So it could flip? And what happens

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<v Speaker 1>if it flipped from one to the other.

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<v Speaker 2>Well, I think I think the two there's two things

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<v Speaker 2>going on. So if we got into a situation where

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<v Speaker 2>the cease far is in place again, I don't think

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<v Speaker 2>it's unreasonable to think that when they come down as much,

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<v Speaker 2>we'll see but they come down again. But then the

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<v Speaker 2>problem we've got is the sheer unpredictability of this, because

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<v Speaker 2>it's what we've learned again in the last week, two weeks,

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<v Speaker 2>three weeks.

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<v Speaker 1>Going to your Central projection shows unemployment peaking around five

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<v Speaker 1>point five percent in twenty twenty seven, a right that

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<v Speaker 1>we hadn't seen since twenty fifteen. Week labor market is helping,

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<v Speaker 1>of course, to contain these second round inflation, but at

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<v Speaker 1>what point does it cast in terms of jobs.

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<v Speaker 2>Well, I think we are seeing softness in the labor market.

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<v Speaker 2>We are seeing something of an output gap opening up,

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<v Speaker 2>and that is reflected in the labor market. So I

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<v Speaker 2>think it's exactly consistent with what you say is in

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<v Speaker 2>the projections. Obviously, we don't want to see that happening.

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<v Speaker 2>And one of the things I would say is that

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<v Speaker 2>we don't have a dual mandate, and you know, I

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<v Speaker 2>like our mandate. What our mandate has in it, though,

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<v Speaker 2>is what we call trade off language, which is okay,

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<v Speaker 2>we've had this, We've had another negative supply shock, push

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<v Speaker 2>its prices up, activity down. Our job is to return

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<v Speaker 2>inflation to target. But that language, that trade off language,

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<v Speaker 2>gives us some flexibility. Is over what period we return

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<v Speaker 2>it to. We obviously have to look like carefully things

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<v Speaker 2>like inflation expectations. But it is in our mandate and

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<v Speaker 2>we you know, I think we must use that where

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<v Speaker 2>we think it's appropriate to.

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<v Speaker 1>You've met with a new chancellor. Do you think your

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<v Speaker 1>mandate could change under this Prime Minister.

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<v Speaker 2>I've had no discussions on that at all, So I

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<v Speaker 2>don't think that's anything that we should speculates about and

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<v Speaker 2>have not had that discussion.

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<v Speaker 1>I know you don't like talking about fiscal policy, but

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<v Speaker 1>what does the uncertainty of the budget in autumn mean

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<v Speaker 1>for for the next couple.

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<v Speaker 2>I don't honestly, I don't go into this autumn in

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<v Speaker 2>a different position than I normally do. Or I know

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<v Speaker 2>there's going to be a budget towards the end of

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<v Speaker 2>the autumn, because that's the way the UK cycle works,

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<v Speaker 2>and so we condition our marjority policy decisions on announced

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<v Speaker 2>fiscal policy. We'll do the same again.

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<v Speaker 1>Given do you think the recent data suggests that the

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<v Speaker 1>labor market is actually bottoming out?

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<v Speaker 2>I wouldn't particularly draw that conclusion. I think we're seeing

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<v Speaker 2>a slow softening of the labor market. We're seeing a

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<v Speaker 2>slow disinflation in underlying inflation. I think when I talk

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<v Speaker 2>to films, we've got this one. Was it called sort

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<v Speaker 2>of you know low by a low fire economy going

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<v Speaker 2>on in the UK is not alone and that's by

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<v Speaker 2>any means. You know, this is a this is a

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<v Speaker 2>market where it's sort of turnovers dropping. I think it's therefore,

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<v Speaker 2>and you see a bit of this is a bit

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<v Speaker 2>of the you fund employment story that's really I think

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<v Speaker 2>hard for people trying to get into the labor market,

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<v Speaker 2>there's low low high low fire market is really hard

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<v Speaker 2>if you haven't got a job when you're trying to

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<v Speaker 2>get into the market.

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<v Speaker 1>Is that AI related?

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<v Speaker 2>So I think there's a lot more to this story

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<v Speaker 2>than AI. I think when our agents talk around, Yes,

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<v Speaker 2>I think we're beginning to see a few signs of

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<v Speaker 2>that in certain pockets of the economy, of people looking

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<v Speaker 2>to you to save labor. But it's pretty early stages.

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<v Speaker 1>I think, Governor. Going back to the markets, I mean

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<v Speaker 1>German tenure bunds have fared better than guilds. Would it

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<v Speaker 1>be fair to say that the market seemed to be

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<v Speaker 1>actually punishing guilds for the lack of inflation discipline here.

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<v Speaker 2>Look, I think there's probably many parts of that story.

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<v Speaker 2>The UK is a highly open economy. Your area is

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<v Speaker 2>less open. I think there's there's many parts to that story.

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<v Speaker 2>So I don't think inflation may may or may not

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<v Speaker 2>be one of them, but it's certainly not the only one.

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<v Speaker 1>Governor, Thank you for your time there.

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<v Speaker 2>You're welcome