The Bank of England’s chief economist said interest rates were unlikely to reach the market-expected peak of 5.25% and warned that monetary policy cannot be put on “autopilot.”
H.uw Pill tells audience at the Institute of Management’s Beasley conference that more action is needed to curb inflation.
“According to the latest forecasts and communications from the Monetary Policy Committee (MPK), and information received today, if the assumptions underlying the forecast are frozen, the level of bank rates set in the financial No, we need it,” he says.
However, given the need to contain further inflation persistence risks implied by potential outflow effects, additional measures may be required.
In my view, some work needs to be done on bank interest rates to remove existing inflationary pressures and complete the necessary monetary policy normalization.Bank of England Chief Economist Hugh Pill
The market had previously expected the bank’s base rate to reach 5.25% in the second half of 2023, but Pill said a rise was unlikely.
The MPC raised interest rates by 0.75 points to 3% at its monetary policy meeting.
Bank governors will emphasize that central bank plans must always be responsive to what is happening in the economy.
This is despite the banks’ Quantitative Tightening (QT) program, which includes the sale of government bonds purchased since the financial crisis, “working in the background” as banks raise interest rates.
But monetary policy cannot be on autopilot. “Any plan will depend on economic conditions and must respond to economic shocks and disruptions,” he said.
“The MPC has said it will use bank rates as a proactive tool to absorb emerging shocks and will ensure the QT program runs ‘in the background’ whenever market conditions permit. ”
Rising gas prices and a tight labor market were the two “inflation shocks” that prompted banks to tighten monetary policy last year, Pill said.
He would say that rising unemployment in the labor market (over 50s leaving the workforce after the pandemic) represents a “negative supply shock” that has pushed up inflation.
“It’s those two factors that guide my current assessment of my views on monetary policy, including the evolution of energy prices and developments in local labor markets, and the policy response to them, such as last week’s financial statements.” right
“As I have said before, in my view, bank rates are set to remove existing inflationary pressures and to complete the necessary monetary policy normalization after more than a decade of exceptional circumstances. still doing something
Author: Anna Wise, Pennsylvania Business Correspondent
Source: Belfast Telegraph