00:01:41 · Francine Lacqua, Andrew Bailey
[00:01:41] S0: But would you say a second hike is the default option absent the end of the war in Iran? [00:01:46] S1: So to be very clear, I think. It really depends, as you said quite rightly, on what happens to energy prices. And that really depends on what happens in the Middle East and to what extent there is progress on a process to settle this. I think if there's no progress on this, particularly if oil prices come down in the last few days more than gas prices. Gas prices come down a bit, but the oil prices come down more. Let's say we don't see any of this and we have energy prices sort of where they were, then I think, as I said in my contribution to the minutes, I'm afraid I think the second raise is probably more likely than not. But I fervently hope that we're going to continue to see progress on that front and that will get reflected in market pricing. But I'm not going to give you a prediction as to how that will map through because there are lots of other moving parts as I've run this. But I think that really is You're right to say that's really where the action is. [00:02:46] S0: But, Governor, in your mind, you're not waiting for evidence, like a risk judgment is enough for the next hike. [00:02:54] S1: Well, I think there is evidence behind it because I think, you know, the risks are on the upside at the moment, but that could change. And that will change, I think, if we get solid evidence that particularly energy prices are moving in a different direction on a sustained basis.
00:02:54 · Andrew Bailey, Francine Lacqua
[00:02:54] S1: Well, I think there is evidence behind it because I think, you know, the risks are on the upside at the moment, but that could change. And that will change, I think, if we get solid evidence that particularly energy prices are moving in a different direction on a sustained basis. [00:03:11] S0: So you also expect the economy to soften in today's forecast. If it continues to outperform, would that add to the number of hikes that you could do?
00:03:11 · Francine Lacqua, Andrew Bailey
[00:03:11] S0: So you also expect the economy to soften in today's forecast. If it continues to outperform, would that add to the number of hikes that you could do? [00:03:20] S1: Well, I think we'd have to ask the question, why is it outperforming? And what do we draw from that? So I think it's very interesting. It's a really interesting story, actually. We've seen firmer activity in the UK economy this year than we had expected. We're very pleased about that. Obviously, we should be. Everybody should be. It's quite concentrated. if you look at the GDP numbers, it appears that it's more concentrated in the sort of business services sector. On sort of the other way of calculating GDP, business investment has actually been quite strong. That's the stronger element of it. And for the first time, our staff have done some quite novel analysis and said, well, can we actually get under the lid and see what contribution AI may have made to this? And they think about a fifth of it. So for the first time, we can really sort of say, actually, we can see something. And that probably is consistent with, A, the business investment story, because there's capital deepening going on to enable AI, and probably the business services story, because you may say, well, that's one of the sectors where you'd probably see. You wouldn't be surprised if there are leaders in it, actually, particularly.
00:03:20 · Andrew Bailey, Francine Lacqua
[00:03:20] S1: Well, I think we'd have to ask the question, why is it outperforming? And what do we draw from that? So I think it's very interesting. It's a really interesting story, actually. We've seen firmer activity in the UK economy this year than we had expected. We're very pleased about that. Obviously, we should be. Everybody should be. It's quite concentrated. if you look at the GDP numbers, it appears that it's more concentrated in the sort of business services sector. On sort of the other way of calculating GDP, business investment has actually been quite strong. That's the stronger element of it. And for the first time, our staff have done some quite novel analysis and said, well, can we actually get under the lid and see what contribution AI may have made to this? And they think about a fifth of it. So for the first time, we can really sort of say, actually, we can see something. And that probably is consistent with, A, the business investment story, because there's capital deepening going on to enable AI, and probably the business services story, because you may say, well, that's one of the sectors where you'd probably see. You wouldn't be surprised if there are leaders in it, actually, particularly. [00:04:24] S0: But, Governor, I mean, we've heard from some economists that are concerned that actually the rates haven't been restrictive enough, right, compared to some of your analysis, even at the Bank of England.
00:04:24 · Francine Lacqua, Andrew Bailey
[00:04:24] S0: But, Governor, I mean, we've heard from some economists that are concerned that actually the rates haven't been restrictive enough, right, compared to some of your analysis, even at the Bank of England. [00:04:34] S1: Well, what I would say to that is, I think we have to factor in financial conditions. So we were in a different position to a number of other central banks going back a year because we were expected to, and I thought it was a reasonable expectation, that we would cut rates this year. But this is before the conflict started. Obviously, we haven't. I don't think that was any great surprise. That really changed back in March. But that has obviously moved the curve quite a lot. So the best way to look at financial conditions, I think, is to look at mortgage rates in this country. And you look at G7 mortgage rates, the increase in U.K. mortgage rates is one of the highest in the G7. So financial conditions are tightened. And obviously, in terms of the judgment on if and when we should move bank rates, we take financial conditions into consideration because that's what people and companies face. [00:05:19] S0: But let's say there's a peace war with Iran and actually there's lasting peace. Then would rates go down quickly?
00:05:19 · Francine Lacqua, Andrew Bailey
[00:05:19] S0: But let's say there's a peace war with Iran and actually there's lasting peace. Then would rates go down quickly? [00:05:27] S1: Well, it would depend on all sorts of things. I mean, obviously, look, that would be very good. Now, unfortunately, I mean, the increase that we are saying today will happen in inflation is quite baked in at this point because of the way that particularly the price cap is calculated for household energy costs. So although I think, you know, if we get that sort of process, it won't go up to five, but we won't get as much relief as you might imagine. And a lot of that is to do with the timing of the energy price cap process, because a lot of the Q1 number is now in the bag, as it were, in the way that they calculated. So I think the question then is how fast does it come down? Does it come down? I mean, we've got it coming down in our central forecast quite fast. Does it come down even faster? And that would be the decision. And that, of course, has to do with To what extent it's passing through to, you know, or not to other parts of inflation? To what extent is, you know, we're getting, seeing stronger activity? Is that coming through into inflation, irrespective of energy prices? Are we going to get other things going on in, for instance, in food inflation? You know, there's always about, you know, a set of things that we have to look at. [00:06:37] S0: Governor, the government is asking us to stockpile. What are you stockpiling?