BOE Governor Cites 'Risk Premium' Behind Rate-Hike Expectations
Bank of England (BOE) Governor Andrew Bailey testified before the UK Parliament's Treasury Committee on August 8, stating that inflation risks are skewed to the upside. He emphasized that maintaining a moderately restrictive policy interest rate serves as insurance against external risks.
Bailey explained that market rate-hike expectations include a 'risk premium' from investors concerned about further increases in energy prices. This premium is not accounted for by the policy rate outlook alone, according to the central bank's analysis.
Regarding crude oil prices, Bailey expressed concern over second-round effects due to the prolonged period of elevated prices. He warned that rising energy costs could spill over into wages and broader prices.