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Bailey notes language change in March meeting significant; SONIA moves up

BOE
  • Bailey says shock from energy prices will be bigger than any single year in the 1970s (but caveats that with the 1970s seeing a sustained rise over many years).
  • He says the Bank doesn't have any policy tool to make that go away. Reiterates this is a terms of trade shock.
  • What might disrupt the temporary nature? Supply chains have two side risks. Omicron is having less impact than the Bank thought (and they hadn't expected a large impact). Labour market is very tight.
  • Very high level of uncertainty. Task is clear but hard. Appropriate to tighten policy, but do so recognising uncertainty and know that there are risks to both side. Going forward need to recognise uncertainty. This is why they changed forward guidance at the last meeting - it is a recognition of the uncertainty.
  • Nothing super new here, but Bailey is pointing to the change in language in the March meeting as being significant - something we pointed out at the time. Market is now reacting to this with gilts / SONIA futures moving higher. Dec-22 SONIA future up 10 ticks.
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