BoE's Bailey says inflation on track for 2% but sees risks too
Rewrites throughout with fresh comments from hearing
By David Milliken and William Schomberg
LONDON, Nov 21 (Reuters) -Bank of England Governor Andrew Bailey said on Tuesday there were risks that inflation in Britain could get stuck at a high level but he also saw signs that it was on track to get back to the central bank's 2% target.
Speaking to lawmakers with other members of the BoE's Monetary Policy Committee, Bailey reiterated his message that a recent fall in Britain's high inflation rate did not mean the battle against price growth was won.
"The risks, and I think the committee are all in one place on this, the risks are on the upside," Bailey said.
He warned that Britain's lack of workers to fill vacancies posed a risk to price growth ahead and the war in Gaza also had the potential to intensify inflation pressure.
However, Bailey said he thought that the BoE's stance on interest rates did not need changing.
"The view I personally take is that I think we have seen signs now that we are ... on target to come back to 2%," Bailey told parliament's Treasury Select Committee (TSC).
Markets currently expect the BoE to start to cut rates by June 2024, sooner than they did in the run-up to the BoE's last rate announcement on Nov. 2.
Bailey said investors were placing "too much weight" on recent data on showing a fall in headline inflation, and getting inflation all the way back to 2% would be a slow process.
"We are ... being very clear in distancing ourselves from market expectations," BoE Deputy Governor Dave Ramsden said at the same hearing.
Bailey on Monday said it was "far too early to be thinking about rate cuts".
The BoE kept rates on hold for the second meeting in a row this month after 14 consecutive increases to fight an inflation rate that peaked above 11% in October 2022 before falling to 4.6% in October this year.
The BoE said at the time of its November meeting that it expected inflation in Britain - which stood at 4.6% in October - would return to 2% only at the end of 2025.
Bailey said he expected inflation would end 2023 a little bit lower than the BoE had expected, but not by much.
He said any attempt to bring inflation back to target faster by raising rates more now would push inflation below target.
Ramsden said surveys of households and businesses were not flashing warning signs about inflation expectations.
But Catherine Mann, another member of the BoE's nine-member Monetary Policy Committee, said she favoured higher interest rates to ensure the inflation risks are quashed.
"Yes I believe that more tightness now is important to cement our commitment to the 2% target," Mann told the TSC.
Reporting by David Milliken; Writing by Kylie MacLellan and William Schomberg, editing by Emelia Sithole-Matarise
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