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Investing.com -- Bank of England (BoE) Governor Andrew Bailey said on Thursday that a recent rise in inflation has added to the uncertainty surrounding the outlook for price growth, though he also pointed to signs of easing in the U.K. labour market.
“In recent months, the evidence that slack is opening up has strengthened, especially in the labour market,” Bailey told attendees at a British Chambers of Commerce conference.
“But there remain uncertainties around the overall balance between supply and demand in the economy as well as the remaining inflation persistence in the system.”
Bailey’s comments come days after BoE policymaker Megan Greene said that the recent uptick in U.K. inflation may not ease as quickly as expected, cautioning against moving too soon on rate cuts.
Speaking at the National Institute of Economic and Social Research on Tuessday, Greene said, “I worry about the near-term profile for inflation this year, which in my view now resembles more of a ’plateau’ than a ’hump’.”
Headline inflation stood at 3.4% in May, well above the central bank’s 2% target. The BoE projects the rate will climb to 3.7% by September and hold close to 3.5% through the end of the year.
Bailey reaffirmed the central bank’s stance on interest rates, noting that policy decisions are not predetermined and that borrowing costs are expected to decline gradually over time.
He was part of the majority on the Monetary Policy Committee who voted last week to leave the benchmark rate unchanged at 4.25%.
Markets currently anticipate two more quarter-point rate cuts this year, bringing the rate down to 3.75% by the end of 2025.
While global risks remain elevated, Bailey said their direct effect on global output might be less severe than previously estimated. He also commented on recent volatility in energy markets.
“There have been significant moves in the oil price following the escalation of the conflict in the Middle East, although not always in the direction we may intuitively have expected,” he said.
“That only goes to show the unpredictability of events in the world today.”
Oil prices inched up on Thursday as investors weighed the fragile ceasefire between Iran and Israel and turned their focus to fundamentals following a decline in U.S. inventories.