BoE Bailey signals near end of tightening cycle, shifts to data-driven stance

In today’s parliamentary hearing, BoE Governor Andrew Bailey provided nuanced insights that suggest the central bank could be nearing the end of its interest rate-hiking cycle. While Bailey was cautious not to confirm that rates have peaked, he pointed to “current evidence” indicating the bank is “much nearer now to the top of the cycle.”

Bailey asserted that many economic indicators are behaving as expected, signaling a likely continued—and quite marked—fall in inflation by year-end. Although he warned of a temporary uptick in the next data release due to year-on-year changes in fuel prices, he brushed off the development as non-central to the inflation trajectory.

Reflecting on BoE’s recent shift in policy language, Bailey noted that the bank has moved from a posture of determining the “how much and over what time frame” of rate hikes to a more “evidence and data-driven” approach. He also emphasized that monetary policy is “now restricted in its impact,” indicating a limited scope for further significant rate hikes.

Deputy Governor Jon Cunliffe also weighed in on inflation, noting the presence of “mixed signals.” While pay growth and service price inflation remain strong, there are signs of “cooling in the labour market,” he said, framing this as a focal point of discussions moving forward.