BOE's Bailey Says Inflation 'Could Be Sticky'

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00:00On the one hand, inflation is still well above the 2% target.

00:04It is possible that it could be sticky.

00:07For example, if increases in administered prices were repeated

00:10or if labour cost pressures continued to be elevated.

00:14There is a risk that the inflationary shocks we have had

00:17could have affected inflation expectations

00:19and the way wages and prices are determined in the economy.

00:24That could lead to more inflationary pressure.

00:26A scenario in the report illustrates that the path of bank rate

00:30might have to be higher than otherwise in response to that.

00:35On the other hand, activity in the economy is below its potential.

00:40We see this most clearly in the labour market

00:42where the number of vacancies has fallen

00:44and employment growth has stalled.

00:48There is a risk that households and businesses remain cautious

00:51about spending and investment,

00:53holding back demand and weighing on job prospects further.

00:58And that could lead to inflation falling below our target.

01:02A scenario in the report illustrates that the path of bank rate

01:05might have to be lower than otherwise in response to that.

01:11A monetary policy is being set to balance these risks

01:14in order to meet the 2% target sustainably

01:16and so that bank rate is neither too low nor too high.

01:22So today's decision is based on two key judgments.

01:27The first key judgment is that underlying domestic price

01:30and wage pressures are continuing to ease.

01:33Recent data suggests that the risk from greater inflation persistence

01:37has become less pronounced

01:38and the risk to medium-term inflation from weaker demand more apparent

01:43such that overall risks are now more balanced.

01:48As the central projection in the report illustrates

01:51and is reflected in the market curve,

01:52this means that we are likely to continue

01:54to be on a gradual downward path for bank rate.