While testifying before the Treasury Select Committee on Wednesday, the Bank of England's (BoE) governor Andrew Bailey said that the UK's central bank's regional agents are seeing some evidence of second-round inflation effects. However, he noted that there is an argument that higher inflation could retrain demand in the economy and bring inflation back down.
Please do not assume the BoE does not view inflation pressures as serious, Bailey told the lawmakers, but added that the Bank's policymakers do not see changes in the world economy that would send interest rates back to levels seen before the global financial crisis. The BoE's governor also assured that they can and will do everything they can to keep inflation under control.
Regarding the UK's labor market, Bailey noted that it is very tight, adding that the BoE needs to keep inflation pressure from the labor market in mind, which influenced his thinking on the December rate increase.
In addition, the official revealed that this years' bank stress test is to include a scenario with rising interest rates.