Mon, May 29, 2023 @ 06:20 GMT
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BoE Bailey not seeing balance sheet returning to pre-financial crisis levels

In his remarks to the Treasury Committee, BoE Governor Bailey commented that he does not foresee the BoE’s balance sheet returning to pre-financial crisis levels. Instead, he envisages a more proactive adjustment strategy, stating, “The Bank wants to adjust its balance sheet so that it has headroom to do whatever it might need to do in the future. It does not want its balance sheet to simply get larger after every economic shock.”

In a rebuttal to critics linking the UK’s inflation surge to QE policies, Bailey downplayed the connection, suggesting that the impact of COVID-19 supply chain disruptions was likely time-limited. “If the only shock that the world had experienced was that one [the Covid-19 supply chain disruption] then I think the evidence now suggests it had a limited time period. Unfortunately, of course, Ukraine came along, and there was no gap between these shocks,” he explained.

Deputy governor Ben Broadbent supported Bailey’s perspective, noting that the UK, along with other regions such as the US and the Eurozone, had engaged in a decade of QE without witnessing an inflation problem or robust money growth.

Addressing concerns about housing prices, Bailey refuted suggestions that the BoE’s policies had contributed to a surge. “Actually, the period in which the house price to income ratio rose most was the period of 10 years before 2007. That was the period when it rose most substantially. It hasn’t done the same thing since then,” he noted.

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