Deep Dive
Shownotes Transcript
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You were surprisingly close to a halt. Can you explain that? Well, I wouldn't say halt. I would say I was much more balanced. Well, I was balanced going into it at the end of the last meeting, thinking, well, I'm really open-minded for the next round and we'll see what happens.
So I think my mind was certainly open at that point as to where we would go next. But the decision could have gone to a hold this time. So how should markets interpret that? Well, I think markets should interpret it as we're in a situation where there are risks on both sides of this situation. There's a risk that demand could be considerably weaker than we expect it to be. That could pull down on inflation. We would then need to probably have lower interest rates.
than we're predicting. There's a risk on the other side that this process of adjustment, this removal of the sort of persistence of the effects from the inflation we had a few years ago, isn't going to materialise in the way we think it is, and also that the supply capacity of the economy remains more limited. We don't get the sort of supply growth that even we're thinking we're going to get, and that will cause inflation to be higher.
We did it in two parts. We started with the domestic situation and brought the tariff and trade news into it. On the domestic situation, this is crucial to your question about how near or far were you from action. An important part of the story is actually particularly where the pay story is going in this country.
Is it going to, you know, it's higher clearly than consistent with the target. Is it going to come down during the course of this year? Are we starting to see the sort of the signals? And my conclusion sort of pouring over the evidence and, you know, the last few weeks as we went into this decision is I can see enough in there, yeah, that I think we are beginning to see in the sort of higher frequency data that we are seeing some signs of it coming off, even though in the official data
slower frequency data actually you don't really see so much of that at the moment
Governor, markets are now almost ruling out a move in June. Is that the right interpretation? I suppose the only thing we can say in confidence is in the world we're in at the moment is that a lot's going to happen in the next whatever it is, six weeks or so. I mean, it really is going to happen. I mean, a lot really is going to happen, I suspect. So I have to be honest with you again, you know, I'm very open-minded about that. Every meeting is, by the way, every meeting is live for us. That's our philosophy. It's not a shifting philosophy. That's a permanent philosophy.
So I'm very open-minded about it, frankly, because I think we'll know a lot. We'll know a lot both domestically and internationally. We'll know a lot more about pay, actually, because there's a peak of pay settlements that we will know more about, because we're sort of just going through that. And I think we can probably guarantee we're going to know more internationally. Stuff will happen. How much uncertainty does the UK-US trade deal actually take off the table? Well, I think it's obviously good news. Now, however...
The UK is a very open economy. So when we formed our view, it's not just about the UK-US bilateral trade relationship. It's about how all the other relationships with the world come back to the UK, as it were, in terms of the openness of the UK. So I really hope, because I do think this is very good news on the UK-US front, I hope it's the first of many, because that's really what we need to see. Is a trade deal with the EU the bigger prize?
Well, it's important. I think China's very important as well, frankly. But those are important ones, yes. Which ones are more important? US-China or UK, EU for the UK? I don't actually have a rank order, to be honest with you. I think it's because of the sort of fluctuating nature of the situation. We do not have a sort of league table of importance in that sense.
Governor, how big would the growth downgrade had been if not for the looser financial conditions? Well, yeah, OK, it's a slightly hypothetical question, obviously, because they did move, obviously. Our sort of taking apart of the components would have suggested that the impact of the world on growth next year, next year's not a bad place to look, actually, would have been about 0.3, I think, something like that.
without then an offset, some offsetting effects on financial markets. And so again, going forward, given all the uncertainty, do you, you know, what does it mean for cuts? How should markets interpret what we're seeing in, you know, longer term? So I think the path is still
gradually and carefully downwards. I don't think that path is done. A lot will depend also, of course, on these important domestic developments. But I'm not going to make predictions about
you know how quickly how much because there is say there is so much now in a sense that we're going to learn in the next in the coming in the coming time but i do think the underlying path is down is we are going to get a bit of a bit of a bump up in inflation i'm afraid we know that it's going to be in the next release because it's it's in these sort of so-called administered prices which we already know but you know our view is it's not it's nothing like what we you know what we saw a few years ago and we do think in the current situation
It's reasonable to look through that. Does a terminal rate at 3.5% sound reasonable? Well, again, I think judgments on the terminal rate and conditions of uncertainty like this are frankly quite heroic at times. Obviously, the market makes those judgments. The market has to make those judgments. You've seen the profile that we've published today with inflation based on that market profile. It doesn't look an unreasonable one.
Going forward, how concerned are you about the surge in pound? Does that have any impact on the U.S. economy? Well, I mean, the word surging is quite dramatic because sterling has been a little bit sort of in the middle, actually. So you've had obviously, you know, we've obviously appreciated against the dollar, but we've depreciated against some other currencies. So relative to some others, we've been somewhat in the middle, actually. Again, we factor it into our
you know, our forecasts. I think we also have to look at it quite carefully as to why is it searching because I'm not sure that just applying the usual theory of interest parity, you know, tells you all the story. In fact, it doesn't touch it because our staff do a lot of work to sort of pick the bones apart and they'll tell you actually that's not really the story. So I think there's more going on than just that story. So again, we have to look at, you know, to what degree are sort of risk premium coming into the market in that sense.
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