Bailey’s Warning About Overstating the Cost of Borrowing
The head of the Bank of England has warned against “exaggerating” a big rise. He has been talking about the costs of borrowing money in the UK for a long time. Andrew Bailey told a group of MPs that this was part of a much bigger trend around the world. This is a very important thing to say.
Rachel Reeves will feel better thanks to Bailey’s help. She is now under a lot of stress because the cost of borrowing money is going up. The governor said that the cost of borrowing for the government has stayed the same this year. He also said that people who write about it shouldn’t “over-focus” on the number.
Long-Term Borrowing Costs Around the World
The governor said that yield curves have been getting steeper all over the developed world. He thinks that the main cause of this is something much bigger than the US. There are a few things that affect the rise in the yield on 30-year bonds. Pension funds are no longer interested in long-term financial products.
He also said that there is “a lot more doubt” about when the Bank will be able to lower interest rates again. This is a very important sign for the whole market. He thinks that the path will keep going down over time. But there is a lot of new doubt.
The Bank’s Position on Future Rate Cuts
Bailey said that there is a lot of doubt about more rate cuts. He wanted to get this important point across. He thinks the message has gotten through because of what is happening to prices in the market. A poll of economists showed that the median expectation was for a new rate cut.
The poll also showed that there would be another drop in the first three months of 2026. Since then, inflation in the UK has gone up. It is now almost twice what it was supposed to be. It is also the highest among the seven most developed economies.
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How the Market Reacted to Bailey’s Comments
Bailey’s comments came at the same time as a much calmer day of trading. Long-term yields also went down. This made the pound worth more than the dollar. It went up a little bit from where it had been going down earlier this week. This is a very good sign.
The stock markets in Europe also went up. Investors were happy to see less volatile trading in the bond markets. The FTSE 100 share index went up a good amount in London. The DAX in Germany went up, and the CAC in France went up as well.
Worries About the Independence of Central Banks
Bailey said he was “very concerned” when asked about Trump’s attacks on the Federal Reserve. He said that this is a very serious issue. The Federal Reserve is the main bank for the economy that is the strongest in the world. It has a very good name.
Bailey said that the foundations of policy are based on monetary and financial stability. He thinks that people shouldn’t be able to trade these basic things. He said that this is a very risky path to take. He really believes the threats.
What Central Banks Do in the Economy
Bailey said that the main job of an independent central bank is to make sure that policy is based on solid ground. They make their own choices about how to do it. This is how it works and how it should work. He thinks that the threats to this are very real.
The central bank gives governments the stability they need to make political choices. This is a very important and basic job. The central bank’s independence is a very important part of the whole economy. This is a very serious problem.
The Future of UK Monetary Policy
It’s hard to say what will happen next with UK monetary policy. There are a lot of problems for the Bank of England. A big worry is that inflation is going up and things are changing around the world. The governor is now trying to keep people’s hopes in check. This is a very hard and very important job.
He thinks that interest rates will keep going down. But now there is a lot of uncertainty about when and how fast. The future of the UK’s monetary policy is now very uncertain.
