April 23, 2024
Economy

Bank of England Governor Andrew Bailey: UK economy already showing ‘signs of an upturn’


  • The governor pointed to strong employment figures 
  • Which he suggested might show the economy was better-than-expected 

Governor of the Bank of England Andrew Bailey has told MPs there are clear signs of an upturn in the economy after it fell into recession at the end of last year.

Bailey also told the Treasury Select Committee on Tuesday that investor bets on interest rate cuts this year ‘were not unreasonable’.

The Governor has previously warned that expectations of a March base rate cut from its current level of 5.25 per cent are ‘premature’, driving forecasts back to mid-2024.

The Bank of England governor also pointed to clear signs of an upturn in the economy after it fell into recession at the end of last year

The Bank of England governor also pointed to clear signs of an upturn in the economy after it fell into recession at the end of last year

Bailey said: ‘The market is essentially embodying in the curve that we will reduce interest rates during the course of this year.

‘We do not endorse the market curve. We are not making a prediction of when or by how much [we will cut rates],’ he said before adding: ‘it’s not unreasonable for the market to think about’ reductions in borrowing costs.

He also pointed to strong employment figures showing the economy might be in better shape than expected.

This is on the back of data published last week showing that the economy had fallen into a shallow recession in the second half of 2023.

Bailey was upbeat despite GDP shrinking by 0.3 per cent in the final three months of the year, according to the Office for National Statistics – a bigger drop than expected.

GDP also fell 0.1 per cent in the three months to September, meaning there had been two consecutive quarters of negative growth – meeting the definition of a recession. 

He added: ‘We think the economy is already actually showing distinct signs of an upturn.

‘There was a lot of emphasis again on this point about the recession, and not as much emphasis on … the fact that there is a strong story, particularly on the labour market, actually also on household incomes.’

Government bond yields fell as Bailey and his colleagues spoke, suggesting investors were adding to their bets on the BoE cutting borrowing costs.

Deputy Governor Ben Broadbent said it was possible that the BoE would cut rates this year, although that would depend on how the economy evolves.

Swati Dhingra, an external member of the Monetary Policy Committee, described substantial risks to Britain’s economy that tight monetary policy would only exacerbate.

UK wage growth in 2023 is expected to be lower than the previous year for the first time since the pandemic, according to a closely-watched industry survey

British employers expect to raise basic pay by an average of 4 per cent this year, down from an expected jump of 5 per cent through 2023 and late 2022, the Chartered Institute of Personnel and Development (CIPD) said. 

The figures represent the first fall since early 2020 when Britain grappled with the economic fallout of Covid-19.

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