Andrew Bailey of the Bank of England Issued Some Cautionary Words

Governor Andrew Bailey of the Bank of England says that in order to counter the growing market expectations for rate cuts in 2024, the bank may need to hike interest rates even more.

Bailey informed the National Farmers Union overnight that rate cuts were not warranted because wage growth is still rapidly increasing and certain components of inflation are still far too high.

Bailey expressed his discomfort with market developments in November when he stated that interest rates need to stay high for an extended period of time.

According to money market pricing, up to 80 basis points are currently "priced in" for 2024. This translates into more than three 25-bp reductions, the first of which could occur as early as May.

Lower UK bond yields reflect growing expectations for rate cuts, which drives down borrowing costs overall and runs counter to the Bank's objective of reducing inflation.

Bailey stated that the Bank was "on watch for further signs of inflationary persistence that may require interest rates to rise again".

(Sources: investing.com, poundsterlinglive.com)