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BoE chief economist: More rate rises on way to battle inflation

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  • 20/05/2022
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BoE chief economist: More rate rises on way to battle inflation
The Bank of England’s (BoE) chief economist Huw Pill has voiced his support for further rate rises in efforts to curb inflation and meet the Monetary Policy Committee’s (MPC) two per cent inflation target.

Speaking in Cardiff, Pill said that the MPC forecasted that the UK consumer price inflation, which reached nine per cent earlier this week, would reach double digits in the fourth quarter this year.

He added that as a policymaker aiming to achieve an inflation target of two per cent, it was “obviously a very uncomfortable situation”.

He continued that acting to achieve the MPC’s two per cent inflation target was “more important than ever”

Pill said that there would be “some degree of further tightening” in monetary policy in the coming months.

He explained: “On the one hand, headline inflation is clearly too high, the UK labour market is tight, wages are growing at stronger rates than would normally be deemed consistent with the inflation target, and business confidence is resilient, in part in anticipation of being able to reestablish profit margins. In short, inflationary momentum in the UK is currently strong.

“On the other hand, significant increases in international energy, food and goods prices over the past year imply a substantial squeeze in UK residents’ real incomes, which will weigh on future demand and employment.

“Looking beyond the shorter term, UK inflation is set to fall as global commodity prices stabilise, bottlenecks in global supply chains ease, and domestic inflationary pressure dissipates as the real income squeeze opens up a margin of economic slack.”

He said the MPC would try to “follow the narrow path” between these two risks while returning inflation to its two per cent target in a “sustainable manner”.

Pill said that the UK monetary policy had been in “supportive mode” following the global financial crisis, the aftermath of the European sovereign crisis, the fallout from the Brexit referendum and the Covid-19 pandemic.

“But now that inflationary pressures are re-emerging, the labour market has tightened and risks to the outlook have become more two-sided, monetary policy is undergoing a transition,” he said.

“In my view, we still have some way to go in our monetary policy tightening, in order to make the return of inflation to target secure,” he added.

Pill said that inflation rising, which was driven by increases in international energy and goods prices was the “biggest challenge the MPC has faced over the past quarter of a century”.

“It is in these testing times that the anchor represented by the two per cent inflation target comes to the fore. Supported by the independence accorded to the MPC to pursue that target, we are able to take the sometimes tough decisions to bring inflation back to two per cent and keep it there sustainably.

“It is that commitment that has led me to support a tightening of monetary policy since I joined the committee last September, and to signal today that this tightening still has further to run,” he said.

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