The Bank of England cut it's benchmark interest rate by a quarter point to four point seventy five percent. On Thursday. Governor Andrew Bailey joined Bloomberg's farant Scene Lacroix shortly after the decision to discuss GOVERNTT.
When you look at what the market is expecting, does gradual mean quarterly in terms of interest rate cuts.
Pass downwards? I think there are a lot of uncertainties out there, both in the world and there's domestic uncertainties as well. So we've emphasized the word gradual again because you know, we're going to have to take account of how those uncertainties play through. I'm not really in a position when there's any of a certain position to say, well, gradual means every so often.
That is not a judgment that we make, but it's a judgment that the markets are making. So if you take away any major sharks, does it seem.
Right, Well, I think the markets have made that judgment, you know. I think it's a reasonable reflection of the forecast that we've published today. By the way, but we should played my condition on the market curve, so it's a reasonable sort of reflection of that judgment. That we think inflation is going to come back to target sustainably within the sort of horizon that we look at.
Governor of the Chancellor said, she spoke to you at the IMF, asked about the budgets and the things that were coming up. Did you warn her of market volatility or what the market.
Would do well, we talked at the IMF, but I think the chance has said we talked about the IMF about her evolving thinking about the budget and her evolving thinking about the fiscal rules we have. I mean the way you know, we have a very regular dialogue. As you know, I'm on my six chancellor since I was appointed, fifth since I started, and with all of them, you know, we have a very regular dialogue. So chances when I
do that. So we talked in Washington about how evolving thinking about the about the budget, about the fiscal rules, and I think the Chances said, you know, we talked last week about markets. She asked me for my assessment of markets. As the Bank of England is we provide the Treasury with our assessment because it's obviously something that we're very close to. I'm very very open and willing to provide that assessment. So yes, we talked through the assessment of markets, but.
This was before the event, so it was it was a market rational expense did on your side.
Well, both before and during. Actually, so I think that if you go back to the being of last week and our assessment of sterling rates, markets were so at the shorter end, they were sort of positioned long for interest rates to go down further than further was expected. I think that that obviously changed during the week. It wasn't surprising to me therefore that there was a closing out of positions and probably stop stop orders were being hit that closing out needed to take place. I think
it took place in an orderly fashion. We weren't seeing disorder in the markets. And by the way, I think by really by Friday afternoon paced non farm payrolls. They're really the dominating event in markets was expectation of the US election, not the not the UK budget.
Do you think the Chanceller was expecting markets to behave that way?
Well, I think this is this was obviously a big budget, as the Chanceller has self said, so I think it's reasonable to expect that markets will respond to it. I mean, they knew some of things they didn't know, you know, they didn't know the precise form of it until it was delivered by the Chancer in Parliament. So I think it was it was entirely appropriate to have some reaction in markets. But the point is it's been an orderly reaction.
That's markets move. We should expect markets to move. It's only when they become disorderly that we should be concerned in that sense.
Ken, And I know you're very reluctant to talk. You know what possible trade wars or tariffs from the US would look like on the economy. But would they be inflationary or would they reduce growth?
Well, I mean we don't know anounced that question, I think ye. What I will say is, look, the UK is a very open economy, so obviously this area matters. That the Chancellor has said yesterday and today quite rightly, and I will join her in this that she will make the case for open markets and free trade, and I will strongly support her in this because I'm a very strong supporter of free trade. I think you would expect the UK to do that. We have very proud
history of free trade in this country. We will, you know, we will, no doubt you know, say our peace and make our case, but we'll see. I think it's important just to say, look, let's get let the new US administration get into office. We will work with them. We worked with all I've worked with a lot of US administrators though for my career. We will work with the next US administration just as we do the current one,
and we did with the previous Trump administration. By the way, I expect constructive relations and we will have a good dialogue.
But are you expecting a more fragmented world? And what does that mean for central bank pasty?
Well, I mean I worry about a more fragmented world in a more general sense. I'm not saying this is entirely due to the US administration, because it clearly isn't. There's a lot of things going on in the world which are a very tragic and be are a risk to the fragmentation of the world economy, and in the fragmentation of the world economy is not a good thing.
Clearly, Governor, when you look at you know the next basis that they came in the budget, how do you how do you expect that to play in wages, in inflation, revenue for a lot of businesses.
So I think there are a number of channels through which this can come and by the way, they're not mutually exclusive, and by the way, they don't need to be constant. They won't be constant over time either. So it can clearly come through higher prices, it could come through lower wages, it could come through a lower level of employment, it could come through lower profit margins, it could come through increased productivity, and it could come through
all of those. We've made a very sort of frankly cautious and almost slightly neutral assumption in today because we want to see how this plays out of our agents will be out there asking businesses. So we've sort of assumed a mixture, frankly, of some wage effects and some
price effects. I think over time, if you look at past events, you would expect probably some initial impact on profit margins because it's not always easy for firms to adjust, but then they do naturally tend to rebuild margins over time. So let's say there's both a time profile and it's sort of across the section profile, so we'll.
See Governor, there's also going to be a lot more bondishments around the world. The US does that automatically, mean that is going to be a premium. Is it going to be difficult to sell all of these bonds?
Well, I think, you know, we'll have to observe that. I would say so far, I would, I would observe. I mean, we have seen increased bond assurance actually both and both by the way, both private and public. Actually, so let's say that, and I think markets have absorbed it well, but I think we have to watch We do have to watch this though carefully clearly.
I think when Bloomberg spoke to Donald Trump a couple of weeks ago, he said that Jay Powell has the easiest job in the world because it's a he doesn't really shop at work. He's had and it was a coin flip every month to what interest rates? Do do you feel like you have an easy job?
Well, actually, I do come to work five days a week. I also do work at weekends. I travel a lot, I work in you know, quite hard. So I probably would beg to differ on that point, I think, by the way, I think no doubt presidents of the US work enormously hard, by the way, so I don't when any signs wants to take away from that but the work effict amongst central bank governors and central bank is in my experience, pretty pretty pretty good one and a pretty hard one.
That was Bank of England Governor Andrew Bailey speaking with Bloomberg's Francine Lacroix