Bank of England Governor Andrew Bailey said that financial markets are putting too much weight on the current data releases and underestimates the persistence of inflation. At the Treasury Select Committee hearing on Tuesday, Bailey said the decline in inflation was good news.

Inflation will end the year a bit lower than the central bank estimated, the BoE Governor told lawmakers.

However, Bailey said the central bank is concerned about the potential persistence of inflation in the course of its journey down to the 2 percent target.

Regarding suggestions on raising the inflation target to 3 percent, Bailey said it is a very bad argument. He asserted that the target should remain at 2 percent.

At the November policy meeting, the Monetary Policy Committee decided to maintain the bank rate at 5.25 percent in a split vote. Policymakers Jonathan Haskel, Catherine Mann and Megan Greene had called for a quarter point rate hike.

At the hearing, MPC external member Catherine Mann said tighter monetary policy will be needed both to reduce inflation itself as well as to align inflation expectations with the remit.

"While I acknowledge that the monetary policy stance has started becoming restrictive, it is so only recently and not by so much," Mann added.

MPC member Dave Ramsden said, "Given my assessment of the outlook and the risks I would not rule out having to raise bank rate further in the future but I will continue to make my decisions on a meeting to meeting basis."

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