Markets calm after Truss chaos, says Bank of England boss Bailey

The governor of the Bank of England has warned that labor shortages in the UK pose a ‘major risk’ to reducing inflation this year.

Andrew Bailey told MPs on the Commons Treasury committee that Britain’s “shrinkage of the labor force” could prevent the rate of inflation from falling as much as hoped.

The comments challenge Prime Minister Rishi Sunak, who earlier this month pledged to cut inflation in half in a series of pledges including growing the economy, cutting national debt and cutting waiting lists on the NHS.

Inflation rose to a 41-year high of 11.1 percent in October, exacerbated by higher energy prices due to the war in Ukraine.

While the figure fell to 10.7 percent in November and is expected to fall further in December, it remains very high and well above the Bank of England’s inflation target of 2 percent.

Bailey also said that “things were back to normal” after September’s disastrous mini-budget.

He told MPs that the extra risk priced into British assets after then-Chancellor Kwasi Kwarteng’s financial statement has “almost disappeared”.

Bailey added that markets have stabilized after Liz Truss’ chaotic premiership.

But he warned that confidence remains fragile and it would take “some time” to convince people that stability had fully returned.

Investors dumped UK assets in the closing months of 2022 after a series of tax cuts laid out by Kwarteng sent markets into a tailspin.

But after most of the policies were dropped by Kwarteng’s successor Jeremy Hunt, Bailey said international investors now understood that “things are back to normal.”