BOE’s Bailey sees subdued inflation effects, businesses focus on cost-cutting

Bank of England Governor Andrew Bailey has suggested that the inflationary second-round effects currently remain subdued, with businesses primarily focusing on cost-cutting measures. Bailey’s comments come amid ongoing concerns about inflation, which remains above the BoE’s 2% target, reaching 3.1% in August. Despite the elevated inflation rates, Bailey noted that there is limited evidence of higher energy costs affecting wages and broader pricing structures. His remarks indicate that while inflation pressures persist, they have not yet prompted a significant shift in wage and price-setting behaviors. Key Takeaways Bailey’s observations suggest that second-round effects of inflation are not yet widespread, consistent with subdued wage and price pressures. Markets appear to interpret Bailey’s cautious stance as reducing the likelihood of a rate cut in November, with pricing supportive of a NO outcome for a decrease. The possibility of further tightening appears consistent with Bailey’s remarks, as inflation remains above the BoE’s target. What to Watch Watch for upcoming communications from the Bank of England that may provide further insights into their inflation outlook and policy...