WEBVTT - BOE Governor Andrew Bailey Talks June Rates

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio News. You were surprisingly close

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<v Speaker 1>to a Holt. Can you explain that?

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<v Speaker 2>Well, I wouldn't say Holt, I would say I was

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<v Speaker 2>much more balanced. Well, I was balanced going into it

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<v Speaker 2>from at the end of the last meeting, thinking well,

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<v Speaker 2>I'm really open minded for the next round and we'll

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<v Speaker 2>see what happens. So I think, you know, my mind

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<v Speaker 2>was certainly open at that point as to where we

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<v Speaker 2>would go next.

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<v Speaker 1>But the decision could have gone to a hold this time.

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<v Speaker 1>So how should markets interpret that?

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<v Speaker 2>Well, I think market shinterpted is we're in a situation

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<v Speaker 2>where there are risks on both sides of this situation.

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<v Speaker 2>There are a risk that demand could be considerably weaker

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<v Speaker 2>than we expect it to be. That could pull down

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<v Speaker 2>on inflation. We would then need to put lower interest

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<v Speaker 2>rates than we're predicting. There's the risk on the other

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<v Speaker 2>side that this process of adjustment was removal of the

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<v Speaker 2>sort of persistence of the fects from the inflation we

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<v Speaker 2>had for years ago isn't going to materialize in the

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<v Speaker 2>way we think it is, And also that the supply

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<v Speaker 2>capacity of the economy remains more limited. We don't get

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<v Speaker 2>the sort of supply growth that even that we're thinking

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<v Speaker 2>we're going to get and that will cause inflation to

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<v Speaker 2>be higher. Now, I we did it in two parts.

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<v Speaker 2>We started with the sort of domestic situation and then

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<v Speaker 2>sort of in the sense, brought the tariff and trade

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<v Speaker 2>news into it. On the domestic situation, this is sort

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<v Speaker 2>of crucial to your question about sort of you know,

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<v Speaker 2>how near or how far were you from action. An

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<v Speaker 2>important part of the story is actually where particularly where

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<v Speaker 2>the pay story is going in this country. Is it

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<v Speaker 2>going to you know, it's it's higher clearly than consistent

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<v Speaker 2>at the target. Is it going to come down during

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<v Speaker 2>the course of this year? Are we starting to see

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<v Speaker 2>the sort of the signals And my conclusion sort of

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<v Speaker 2>pouring over the evidence and the last few weeks as

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<v Speaker 2>we went into this decision, is I can see enough

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<v Speaker 2>in there. Yeah, that I think we are begining to

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<v Speaker 2>see in the sort of higher frequency data that we

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<v Speaker 2>are seeing some scientific coming off, even though in the

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<v Speaker 2>official slower frequency data, actually you don't really see so

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<v Speaker 2>much of that at the.

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<v Speaker 1>Moment, Governor, I mean, Murgis are now almost ruling out

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<v Speaker 1>to move in June. Is that the right interpretation?

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<v Speaker 2>I suppose The only thing we can say in confidences

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<v Speaker 2>in the world we're in at the moment is that

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<v Speaker 2>a lot's going to happen in the next whatever it

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<v Speaker 2>is six weeks or so. I mean, it really is

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<v Speaker 2>going to happen. I mean a lot really is going

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<v Speaker 2>to happen. I suspect, So I have to be honest

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<v Speaker 2>with you again. You know, I'm very open minded about

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<v Speaker 2>every meeting is by the way, every meetings live for us.

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<v Speaker 2>That's our philosophy. It's it's not a shifting philosophy, that's

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<v Speaker 2>a permanent philosophy. So I'm very open minded about it,

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<v Speaker 2>frankly because I think we'll know a lot. We'll know

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<v Speaker 2>a lot both domestically and internationally. Well, there are a

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<v Speaker 2>lot more about pay actually, because there's a peak of

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<v Speaker 2>pay settlements that we will know more about because we're

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<v Speaker 2>sort of just going through that, and I think we

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<v Speaker 2>can probably guarantee we're going to know more internationally. Stuff

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<v Speaker 2>will happen.

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<v Speaker 1>How much uncertainty does the UK US trade deal actually

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<v Speaker 1>take off the table?

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<v Speaker 2>Well, I think it's obviously good news now. However, the

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<v Speaker 2>UK is the very open economy, so when we formed

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<v Speaker 2>our view, it's not just about the UK US bilateral

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<v Speaker 2>trade relationship. It's about how all the other relationships with

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<v Speaker 2>the world come back to the UK as it were

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<v Speaker 2>in terms of the openness of the UK. So I

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<v Speaker 2>really hope, because I do think this is very good

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<v Speaker 2>news on the UK US front. I hope it's the

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<v Speaker 2>first of many, because that's really what we need to see.

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<v Speaker 1>It is a trade deal with the EU. The bigger prize.

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<v Speaker 2>Well, it's important. I think China's very important as well, frankly,

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<v Speaker 2>but those are important.

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<v Speaker 1>Ones, Yes, which ones are more important US, China or UK?

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<v Speaker 1>You for the UN, I don't.

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<v Speaker 2>Actually have a rank, order to be honest with you.

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<v Speaker 2>I think it's it's because of the sort of the

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<v Speaker 2>sort of other fluctuation nature of the situation. We do

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<v Speaker 2>not have a sort of you know, a league table

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<v Speaker 2>of importance in that sense.

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<v Speaker 1>How big would the growth downgrade had been if not

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<v Speaker 1>for the looser financial conditions?

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<v Speaker 2>Well, yeah, okay, it's a slightly hypopoctical question obviously, because

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<v Speaker 2>they did move. Obviously, our sort of taking a part

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<v Speaker 2>of the of the components would have suggested that the

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<v Speaker 2>impact of the world on growth next year and actually

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<v Speaker 2>is not a bad place to lock Actually would have

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<v Speaker 2>been about point three. I think something like that without

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<v Speaker 2>then and of offsetting effects of financial markets, and so.

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<v Speaker 1>Again going forward, given all the uncertainty, do you you know,

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<v Speaker 1>what does it mean for cuts? How should market interpret

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<v Speaker 1>what we're seeing in you know, longer term?

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<v Speaker 2>So I think the path is still gradually and carefully downwards.

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<v Speaker 2>I don't think that that path is done. A lot

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<v Speaker 2>will depend also, of course, on the say, on these

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<v Speaker 2>important domestic developments. But I'm not going to make predictions

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<v Speaker 2>about you know, how quickly how much, because there is say,

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<v Speaker 2>there is so much now in a sense that we're

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<v Speaker 2>going to learn in the next in the coming in

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<v Speaker 2>the coming time. But I do think the underlying path

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<v Speaker 2>is down as we are going to get a bit

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<v Speaker 2>of a bit of a bump up in inflation. I'm

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<v Speaker 2>afraid we know that it's going to be in the

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<v Speaker 2>next release because it's it's in these sort of so

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<v Speaker 2>called administered prices, which we already know. But our view

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<v Speaker 2>is it's not it's nothing like what we what we

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<v Speaker 2>saw a few years ago. And we do think in

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<v Speaker 2>the current situation, you know, it's reasonable to look through

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<v Speaker 2>that does.

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<v Speaker 1>A terminal rate at three and a half percent sound reasonable.

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<v Speaker 2>Well, again, I think judgments on the terminal rate and

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<v Speaker 2>conditions of uncertainty like this are frankly, you know, quite

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<v Speaker 2>quite heroic at times. Obviously the market makes those judgments.

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<v Speaker 2>Market has to make those judgments. Uh, you've seen the

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<v Speaker 2>profile that we've published today with inflation based on that

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<v Speaker 2>market profile, and it doesn't look an unreasonable one.

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<v Speaker 1>Going forward to how concerned are you about the surgeon pound?

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<v Speaker 1>Does that have any impact on.

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<v Speaker 2>How much the word surging is is quite dramatic because

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<v Speaker 2>Stirling has been a little bit sort of in the middle. Actually,

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<v Speaker 2>so you've had obviously we've obviously we've appreciated against the dollar,

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<v Speaker 2>but we've depreciated against some other currencies, so we've relative

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<v Speaker 2>to some others, we've been somewhat in the middle. Actually again, yeah,

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<v Speaker 2>we factor it into our our forecast. I think we

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<v Speaker 2>also have to look at it quite carefully as to

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<v Speaker 2>why is it searching? Because I'm not sure that just

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<v Speaker 2>apploying the usual theory of interest parity you know, tells

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<v Speaker 2>you all the story. In fact, it doesn't touch it

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<v Speaker 2>because our staff do a lot of work to sort

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<v Speaker 2>of pick the bones apart, and they'll tell you actually

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<v Speaker 2>that's not really, that's not really the story. So I

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<v Speaker 2>think it's more going on than just that story. So

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<v Speaker 2>again we have to look at you, what degree I

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<v Speaker 2>sort of risk Premiu coming into the into the market

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<v Speaker 2>in that sense,