Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

BoE's Pill says size and duration of inflation spike bigger than expected

Published 07/10/2021, 11:03
Updated 07/10/2021, 11:17
© Reuters. FILE PHOTO: A shopper leaves a Morrisons supermarket in Bradford, England, January 9, 2003. REUTERS/Ian Hodgson/File Photo

© Reuters. FILE PHOTO: A shopper leaves a Morrisons supermarket in Bradford, England, January 9, 2003. REUTERS/Ian Hodgson/File Photo

LONDON (Reuters) - The size and duration of a recent jump in inflation is proving greater than expected but interest rates are likely to remain relatively low in the coming years, new Bank of England Chief Economist Huw Pill said.

"As the pandemic recedes and the level and composition of global demand and supply normalise, these inflationary pressures should subside," Pill said in answers to questions from lawmakers that were published on Thursday.

"But the magnitude and duration of the transient inflation spike is proving greater than expected."

His comments chimed with the BoE's September policy statement in which it said Britain's consumer price inflation rate was likely to top 4% - more than double the BoE's target - and the case for a first interest rate hike since the coronavirus pandemic was strengthening.

Pill said the risks to the central bank's economic and inflation forecasts were "again clearly becoming two-sided" after the economy slumped by nearly 10% in 2020 due to the pandemic, but the BoE was unlikely to hike rates sharply.

"I do expect interest rates to remain at relatively low levels for the coming years, even as the impact of the COVID-19 pandemic recedes," he said.

The former Goldman Sachs (NYSE:GS) economist also said negative interest rates - now part of the BoE's arsenal - were "both feasible and likely to ease monetary conditions" but they were no panacea and they could probably provide a limited 50 or 100 basis points of additional reduction in the Bank Rate.

Earlier on Thursday, a BoE survey showed British companies had raised their inflation expectations.

© Reuters. FILE PHOTO: A shopper leaves a Morrisons supermarket in Bradford, England, January 9, 2003. REUTERS/Ian Hodgson/File Photo

Year-ahead annual price inflation was expected to be 3.5% in the three months to September 2022, up from 3.2% in the August survey, the BoE said.

The survey of almost 2,900 businesses was conducted between Sept. 3 and Sept. 17, before a recent jump in energy prices and an escalation of a shortage of supplies and staff which has prompted some private economists to say that Britain's consumer price inflation rate will hit 5%.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.