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Bailey says the hike is due to an extreme terms of trade shock

BOE
  • He says that this is not a standard demand-driven rate rise, it's an extreme example of a terms of trade shock. Have not raised rates because of a strong economy, it is not roaring away. It is unlikely inflation will return to target without a Bank Rate, which would lead to inflation becoming ingrained.
  • Goes on to say interest rates are very low by historical standards. Some more tightening is likely in the coming month, but would be a mistake to assume rates are on an inevitable march upwards. Says we face a trade off between lower growth and high inflation.
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