MNI BRIEF:BOE's Bailey-Inflation Less Persistent Than Expected

UK inflation is proving less persistent than policymakers had expected but the Bank of England must remain vigilant to the risk that price pressures will settle at a higher plateau, Bank of England Governor Andrew Bailey said Friday.

"We are now seeing a revision down in our assessment of that intrinsic persistence, but this is not something we can take for granted," Bailey said according to prepared remarks for a speech at the Kansas City Fed's Jackson Hole Symposium.

"We still face the question of whether this persistent element is on course to decline to a level consistent with inflation being at target on a sustained basis and what it will take to make that happen. Is the decline of persistence now almost baked in as the shocks to headline inflation unwind, or will it also require a negative output gap to open up, or are we experiencing a more permanent change to price, wage and margin setting which would require monetary policy to remain tighter for longer?"

He said the UK and other economies had navigated the Covid inflation episode relatively well and experience today suggests policymakers did the right thing by acting aggressively once inflation broadened.

"The second round inflation effects appear to be smaller than we expected. But it is too early to declare victory. Policy does have to react – the regime works because we use it," he said. (See MNI INTERVIEW: 'Strange' Soft 2025 Growth Key To BOE Cut Case)