MNI BRIEF: BOE's Bailey Sees Signs Of Softening In Economy

Bank of England Governor Andrew Bailey downplayed the recent pick-up in UK inflation and said that there were signs of softening in the economy.

Speaking at a panel event in Sintra, Bailey said the reason inflation has gone up "is really entirely due to so called administered prices ... it's not telling us much, or anything, about the context of the economy." He saw evidence of a softer economy and as a result "the direction of interest rates continues to be downwards."

Asked about the neutral rate of interest, Bailey said that rather than focusing on the level of “R-star” the BOE was instead trying to assess the degree of restrictiveness of policy and that this was coming down, though policy at its current level may be less restrictive than it has been historically.

He said financial conditions were less useful as an indicator at present, as historic correlations between asset classes have broken down. (See MNI INTERVIEW: Recent Inflation Shocks Restrict Policy - Monti)