In the Asian session on Wednesday (May 24), GBP/USD rose to 1.2425, an increase of 0.09%. BoE Governor Bailey admits the BoE has “very important lessons to learn” and that the BoE needs to step up its response to major economic shocks, with inflation still in double digits and food prices at their fastest pace since the 1970s rise.
Bailey said food inflation may have peaked, but that proved incorrect as weather events in other parts of the world affected crops such as sugar. Food producers may also have locked in higher costs than the BoE expected, which the BoE should have taken note of, he said. There is a risk of persistent inflation in the UK, and the central bank must respond. The Monetary Policy Committee will adjust Bank interest rates as necessary to bring inflation back to a sustainable target level in the medium term. If there is evidence of more persistent inflationary pressures, then Monetary policy needs to be tightened further. Bailey also stressed that the tool of raising interest rates must be used cautiously and should not try to fight inflation by raising interest rates sharply.
