Bank of England Governor Andrew Bailey has warned that a specific market “constellation” – where equity markets fall, US bond yields rise, and the dollar depreciates – needs “very careful” monitoring as it has historically shifted White House policy and is now impacting UK interest rate certainty. He told MPs that US trade policy is having a “big impact on markets.”
Bailey recounted past instances where such market behavior prompted policy responses from the US administration. He urged vigilance, noting that equity markets currently appear overly optimistic about how the situation will unfold.
Despite the market turbulence, Bailey reiterated his expectation for a decline in UK wage growth in the coming months. This anticipated moderation in wage settlements is a key domestic factor that could provide the Monetary Policy Committee with greater confidence to implement further interest rate reductions.