Bank of England Governor Andrew Bailey said on Thursday that the labour market is very tight right now and there are signs of more persistent price pressures, which is concerning to the BoE, according to Reuters. Bailey added that wholesale gas prices are likely to push up inflation further as new price caps are set. 

Omicron is a very important economic development, Bailey added, and it certainly can have quite an effect on activity in the economy. However, its not clear what the impact of Omicron will be on inflation, he cautioned. Thus, we have to take the action needed to address inflation pressures, he added. 

Market Reaction

Bailey's comments come after the BoE surprised markets earlier in the session by opting to hike interest rates by 15bps to 0.25% versus the consensus expectation for a rate hold. That surprise lifted GBP/USD significantly from around 1.3280 to the mid-1.3300s. GBP/USD continues to trade within a 1.3340-1.3370ish range and hasn't reacted to Bailey's latest remarks.