Bank of England Governor Andrew Bailey told lawmakers on Tuesday that further interest rate increases are not a foregone conclusion, pushing back on market pricing for additional hikes. He said investors have built in a risk premium tied to energy-price concerns that goes beyond the central bank's own outlook, ahead of the BoE's September 17 rate decision.
Bailey said he wants to dispel the idea that interest rate increases are inevitable, stressing that any policy changes depend on economic and geopolitical developments rather than a predetermined timeline. Speaking before parliament's Treasury Committee, Bailey and three other Monetary Policy Committee members maintained their existing positions ahead of the BoE's interest rate announcement on September 17.
Bailey told lawmakers that investors have priced in rate hikes beyond what the central bank's most likely policy path suggests. He attributed this "risk premium" to market concerns about potential further increases in energy prices. As a result, markets currently price in one quarter-percentage-point rate hike by the end of this year, with two additional increases expected in 2027.
The Bank of England has kept rates unchanged since the Iran war began at the end of February. However, this contrasts with the European Central Bank, which raised rates in June and is expected to do so again on Thursday. Investors currently see only a small probability of a rate hike next week.
Source: Investing.com
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