Bank of England's Bailey says credible budget policy is needed more than ever
TLT•Bank of England Governor Andrew Bailey said governments must restore confidence in public finances as bond markets face pressure from high borrowing and rising inflation. He said recent market moves were “some way from normal,” but not yet stressed or reflecting illiquidity.
1. Bailey calls for credible policy
Bailey said fiscal policy must be credible, directed at stability and seen as such by markets, adding that commitments to this stance were “needed more than ever.” His comments came less than three weeks before Finance Minister John Healey was due to deliver his first budget, which was expected to be constrained by rising borrowing costs.
2. Inflation remains central focus
Bailey said central banks must stay focused on bringing down inflation. He said evidence that higher energy prices had passed through to wider inflation in Britain remained “quite subdued,” but warned that the longer higher prices persisted, the more difficult the situation would become.
3. Bond-market risks highlighted
Bailey said policymakers could not be relaxed about large, concentrated investor positions that could cause wider disruption. Mohamed El-Erian said bond markets were caught in a rut of higher yields and that there was no clear technical or policy “circuit breaker.”
