LONDON: The Bank of England’s (BoE) top two officials raised questions about the certainty of an interest-rate increase in December, noting the decision would be finely balanced.

       Governor Andrew Bailey told the Sunday Times that risks to the United Kingdom economy were “two-sided” at the moment, with slowing growth and rising inflation.

       That echoed comments made Friday by chief economist Huw Pill.

       Pill, who joined the bank in the autumn from the investment bank Goldman Sachs, added that there were still many uncertain trends in the economy and that he was prepared to wait for the picture to clear before making a decision.

       Bailey also emphasised that the BoE will have to act if “second-round effects, particularly in wage bargaining and the labour market” start seeping through into higher prices.

       After a week in which inflation hit the highest in a decade and an official report indicated the labour market was tightening, neither Bailey nor Pill indicated that was a cause for concern yet.

       While Bailey said his remarks were consistent with what he had said in October, the tone was more careful than his remarks in the lead-up to the BoE’s meeting earlier this month.

       Investors moved quickly to price in the first rise in borrowing costs since the pandemic after Bailey said at a Group of 30 event that the BoE will “have to act” to curb inflationary forces.

       Policy-makers wrong-footed investors on Nov 4 by leaving rates unchanged.

       Since then, Bailey has sought to emphasise the conditions he attached to his comment about the likelihood that policy will tighten soon, and Pill added to that effort on Friday.

       Together, the comments raise doubts whether the BoE will raise rates at the next meeting on Dec 16, something financial markets have priced in as a near certainty.

       What happens in February is also in focus. The big question is whether the Monetary Policy Committee raises borrowing costs to 0.5% by then – the threshold after which policy makers may let gilts that mature in its ￡875bil (US$1.2 trillion or RM5.03 trillion) asset-purchase programme rollout of the portfolio without being replaced.

       On Friday, money markets were betting the key rate would be about nine basis points short of hitting that level.

       Bailey and Pill highlighted issues that may give policy makers reasons to pause before moving, namely, that the pace of recovery has slowed and that the cause of inflation – higher energy prices due to a supply squeeze – won’t be cured by higher rates.

       Also, it may take time to assess whether expectations about future inflation were rising in an alarming way or if that kind of thinking is starting to seep into the wages sought by workers.

       “Let’s be clear – if we see inflation expatiations that’s increasing, we’ll have to act,” Bailey told the Sunday Times.

       “There’s no question.

       “But to be clear, at no point did I or anybody say, ‘And by the way, we’re going to raise interest rates in November’.” ― Bloomberg