Bank of England's Bailey: ‘More restrictive policy' could still be needed due to labor market shocks

Bank of England Governor Andrew Bailey will hail the progress made in dampening inflation in the U.K. in a Friday speech, but caution that monetary policy may need to remain restrictive for longer than expected due to shocks from the labor market.

However, he will caution that two less"benign" scenarios remain possible that will require the Bank of England to"maintain restriction for longer." Headline inflation has"fallen sharply as energy and food price shocks in particular have fallen away," while higher rates have helped tackle so-called second round effects such as wage growth and price-setting, Bailey is expected to say in a speech at the U.S. Federal Reserve's central bank symposium in Jackson Hole, Wyoming.

Markets have almost fully priced in another 50 basis points in cut this year, according to LSEG data.

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