Speaker 1: The Bank of England cut it's benchmark interest rate by
Speaker 1: a quarter point to four point seventy five percent. On Thursday.
Speaker 1: Governor Andrew Bailey joined Bloomberg's farant Scene Lacroix shortly after
Speaker 1: the decision to discuss GOVERNTT.
Speaker 2: When you look at what the market is expecting, does
Speaker 2: gradual mean quarterly in terms of interest rate cuts.
Speaker 3: Pass downwards? I think there are a lot of uncertainties
Speaker 3: out there, both in the world and there's domestic uncertainties
Speaker 3: as well. So we've emphasized the word gradual again because
Speaker 3: you know, we're going to have to take account of
Speaker 3: how those uncertainties play through. I'm not really in a
Speaker 3: position when there's any of a certain position to say, well,
Speaker 3: gradual means every so often.
Speaker 2: That is not a judgment that we make, but it's
Speaker 2: a judgment that the markets are making. So if you
Speaker 2: take away any major sharks, does it seem.
Speaker 3: Right, Well, I think the markets have made that judgment,
Speaker 3: you know. I think it's a reasonable reflection of the
Speaker 3: forecast that we've published today. By the way, but we
Speaker 3: should played my condition on the market curve, so it's
Speaker 3: a reasonable sort of reflection of that judgment. That we
Speaker 3: think inflation is going to come back to target sustainably
Speaker 3: within the sort of horizon that we look at.
Speaker 2: Governor of the Chancellor said, she spoke to you at
Speaker 2: the IMF, asked about the budgets and the things that
Speaker 2: were coming up. Did you warn her of market volatility
Speaker 2: or what the market.
Speaker 3: Would do well, we talked at the IMF, but I
Speaker 3: think the chance has said we talked about the IMF
Speaker 3: about her evolving thinking about the budget and her evolving
Speaker 3: thinking about the fiscal rules we have. I mean the
Speaker 3: way you know, we have a very regular dialogue. As
Speaker 3: you know, I'm on my six chancellor since I was appointed,
Speaker 3: fifth since I started, and with all of them, you know,
Speaker 3: we have a very regular dialogue. So chances when I
Speaker 3: do that. So we talked in Washington about how evolving
Speaker 3: thinking about the about the budget, about the fiscal rules,
Speaker 3: and I think the Chances said, you know, we talked
Speaker 3: last week about markets. She asked me for my assessment
Speaker 3: of markets. As the Bank of England is we provide
Speaker 3: the Treasury with our assessment because it's obviously something that
Speaker 3: we're very close to. I'm very very open and willing
Speaker 3: to provide that assessment. So yes, we talked through the
Speaker 3: assessment of markets, but.
Speaker 2: This was before the event, so it was it was
Speaker 2: a market rational expense did on your side.
Speaker 3: Well, both before and during. Actually, so I think that
Speaker 3: if you go back to the being of last week
Speaker 3: and our assessment of sterling rates, markets were so at
Speaker 3: the shorter end, they were sort of positioned long for
Speaker 3: interest rates to go down further than further was expected.
Speaker 3: I think that that obviously changed during the week. It
Speaker 3: wasn't surprising to me therefore that there was a closing
Speaker 3: out of positions and probably stop stop orders were being
Speaker 3: hit that closing out needed to take place. I think
Speaker 3: it took place in an orderly fashion. We weren't seeing
Speaker 3: disorder in the markets. And by the way, I think
Speaker 3: by really by Friday afternoon paced non farm payrolls. They're
Speaker 3: really the dominating event in markets was expectation of the
Speaker 3: US election, not the not the UK budget.
Speaker 2: Do you think the Chanceller was expecting markets to behave
Speaker 2: that way?
Speaker 3: Well, I think this is this was obviously a big budget,
Speaker 3: as the Chanceller has self said, so I think it's
Speaker 3: reasonable to expect that markets will respond to it. I mean,
Speaker 3: they knew some of things they didn't know, you know,
Speaker 3: they didn't know the precise form of it until it
Speaker 3: was delivered by the Chancer in Parliament. So I think
Speaker 3: it was it was entirely appropriate to have some reaction
Speaker 3: in markets. But the point is it's been an orderly reaction.
Speaker 3: That's markets move. We should expect markets to move. It's
Speaker 3: only when they become disorderly that we should be concerned
Speaker 3: in that sense.
Speaker 2: Ken, And I know you're very reluctant to talk. You
Speaker 2: know what possible trade wars or tariffs from the US
Speaker 2: would look like on the economy. But would they be
Speaker 2: inflationary or would they reduce growth?
Speaker 3: Well, I mean we don't know anounced that question, I
Speaker 3: think ye. What I will say is, look, the UK
Speaker 3: is a very open economy, so obviously this area matters.
Speaker 3: That the Chancellor has said yesterday and today quite rightly,
Speaker 3: and I will join her in this that she will
Speaker 3: make the case for open markets and free trade, and
Speaker 3: I will strongly support her in this because I'm a
Speaker 3: very strong supporter of free trade. I think you would
Speaker 3: expect the UK to do that. We have very proud
Speaker 3: history of free trade in this country. We will, you know,
Speaker 3: we will, no doubt you know, say our peace and
Speaker 3: make our case, but we'll see. I think it's important
Speaker 3: just to say, look, let's get let the new US
Speaker 3: administration get into office. We will work with them. We
Speaker 3: worked with all I've worked with a lot of US
Speaker 3: administrators though for my career. We will work with the
Speaker 3: next US administration just as we do the current one,
Speaker 3: and we did with the previous Trump administration. By the way,
Speaker 3: I expect constructive relations and we will have a good dialogue.
Speaker 2: But are you expecting a more fragmented world? And what
Speaker 2: does that mean for central bank pasty?
Speaker 3: Well, I mean I worry about a more fragmented world
Speaker 3: in a more general sense. I'm not saying this is
Speaker 3: entirely due to the US administration, because it clearly isn't.
Speaker 3: There's a lot of things going on in the world
Speaker 3: which are a very tragic and be are a risk
Speaker 3: to the fragmentation of the world economy, and in the
Speaker 3: fragmentation of the world economy is not a good thing.
Speaker 2: Clearly, Governor, when you look at you know the next
Speaker 2: basis that they came in the budget, how do you
Speaker 2: how do you expect that to play in wages, in inflation,
Speaker 2: revenue for a lot of businesses.
Speaker 3: So I think there are a number of channels through
Speaker 3: which this can come and by the way, they're not
Speaker 3: mutually exclusive, and by the way, they don't need to
Speaker 3: be constant. They won't be constant over time either. So
Speaker 3: it can clearly come through higher prices, it could come
Speaker 3: through lower wages, it could come through a lower level
Speaker 3: of employment, it could come through lower profit margins, it
Speaker 3: could come through increased productivity, and it could come through
Speaker 3: all of those. We've made a very sort of frankly
Speaker 3: cautious and almost slightly neutral assumption in today because we
Speaker 3: want to see how this plays out of our agents
Speaker 3: will be out there asking businesses. So we've sort of
Speaker 3: assumed a mixture, frankly, of some wage effects and some
Speaker 3: price effects. I think over time, if you look at
Speaker 3: past events, you would expect probably some initial impact on
Speaker 3: profit margins because it's not always easy for firms to adjust,
Speaker 3: but then they do naturally tend to rebuild margins over time.
Speaker 3: So let's say there's both a time profile and it's
Speaker 3: sort of across the section profile, so we'll.
Speaker 2: See Governor, there's also going to be a lot more
Speaker 2: bondishments around the world. The US does that automatically, mean
Speaker 2: that is going to be a premium. Is it going
Speaker 2: to be difficult to sell all of these bonds?
Speaker 3: Well, I think, you know, we'll have to observe that.
Speaker 3: I would say so far, I would, I would observe.
Speaker 3: I mean, we have seen increased bond assurance actually both
Speaker 3: and both by the way, both private and public. Actually,
Speaker 3: so let's say that, and I think markets have absorbed
Speaker 3: it well, but I think we have to watch We
Speaker 3: do have to watch this though carefully clearly.
Speaker 2: I think when Bloomberg spoke to Donald Trump a couple
Speaker 2: of weeks ago, he said that Jay Powell has the
Speaker 2: easiest job in the world because it's a he doesn't
Speaker 2: really shop at work. He's had and it was a
Speaker 2: coin flip every month to what interest rates? Do do
Speaker 2: you feel like you have an easy job?
Speaker 3: Well, actually, I do come to work five days a week.
Speaker 3: I also do work at weekends. I travel a lot,
Speaker 3: I work in you know, quite hard. So I probably
Speaker 3: would beg to differ on that point, I think, by
Speaker 3: the way, I think no doubt presidents of the US
Speaker 3: work enormously hard, by the way, so I don't when
Speaker 3: any signs wants to take away from that but the
Speaker 3: work effict amongst central bank governors and central bank is
Speaker 3: in my experience, pretty pretty pretty good one and a
Speaker 3: pretty hard one.
Speaker 1: That was Bank of England Governor Andrew Bailey speaking with
Speaker 1: Bloomberg's Francine Lacroix