Bank of England's Bailey sees costs rising even more

NEW YORK (Mar 28)  As the gold price falls today, Bank of England's Baliey has been talking at the Bruegel Institute in Brussels Belgium. The governor of the BoE is being questioned by Guntram Wolff with the subject of the conversation mainly focused on Financial stability in "changing times".

The Bank of England Governor said, "we are at an even more challenging point for the global economy than after the global financial crises". This is an interesting comment for gold bugs as the price of gold rose massively after the financial crisis. There were other factors including the introduction of QE. This time round there is a rate hiking cycle and a withdrawal of stimulus.gold

He went on to say, it is appropriate to tighten in these circumstances but there are risks to inflation on both sides. When asked about the BoE's next rate decision he noted the "situation is very volatile". This means a hike is by no means a done deal as some analysts had been forecasting.

Looking forward, Bailey said the shock from the energy prices this year will be larger than any single year in the 1970s. In addition to this, he noted that there is more to come from the inflation shock. If that is the case there could be more action coming from the BoE and they have raised interest rates already. Markets have been pricing a 50bps hike from the Fed and there is a general consensus that the BoE will act throughout the rest of this year.

KITCO