BoE chief economist warns UK inflation likely to hit 5%

Date:

UK inflation could be “close to or slightly above 5%” early next year as the Bank of England’s new chief economist said the central bank would make a “living” decision on whether to raise interest rates. I warned that there was. At that November meeting.

Huw Pill refused to disclose voting methods, saying he was “balanced” at a meeting of the BoE Monetary Policy Committee on November 4, in his first interview in this position. I think the moon is alive, “he added.

The rate of increase in consumer prices Dropped to 3.1% in September The BoE previously predicted that it would exceed 4% by the end of the year.

Strong economic recovery from the coronavirus crisis, soaring energy prices, and Global supply chain turmoil.

Pill’s view that inflation is likely to recover in late 2022 did not satisfy him with the expected sharp price increases later this year and early 2022.

He states: [in the months ahead].. And it’s a very unpleasant place for central banks with an inflation target of 2 percent. ”

Financial markets are betting on rising BoE rates as early as next month, Comment from Governor Andrew Bailey On weekends, central banks will “have to act” to curb inflation.

But Pill advised traders not to get too absorbed Exact timing of rate increase“For now, focusing on interest rates may be a little too exciting,” he said.

He urged the market to look at the core trends underlying the UK economy, saying the record low of 0.1% is no longer needed. “I think the big picture is that there is reason not to need the urgent policy setting seen after the intensification of the pandemic,” said Pill.

“Configuration [of monetary policy] What we have now is a supportive setting.Thus, the need for support has decreased [policy] bridge [to the other side of the pandemic] It was built and mostly traversed. “

Line chart of bank interest rates and expectations (%) showing that the market is betting on the rise in BoE interest rates in November

The role of BoE Chief Economist, formerly played by Andy Haldan, has a major impact on interest rates, financial stability and the direction of central bank research.

Mr Pill said BoE’s actions to stabilize the future economy should no longer be measured by the amount of quantitative easing it has implemented. Round of asset purchases by the end of 2021. He added that the same would apply to future asset sales.

“If you want to get excited, you should take a look [interest] Fees, “said Pill.

Pill was in a hawkish position on current monetary policy, but not suggesting a rate that needs to move much higher than the 0.75 percent level that existed before the Covid-19 pandemic. I was careful.

“Given the temporary nature of what we see in inflation in our base case, we don’t see the need to go to limits. [policy] “Stance,” he said.

Since joining the BoE in September, Pill said there has been a “regime change” in monetary policy as the economy, based on the latest available data, has nearly recovered to pre-pandemic levels.

A line graph of UK monthly GDP (February 2020 = 100) shows that UK production is approaching pre-pandemic levels.

After 13 years of focusing on stimulating spending by households and businesses implementing many quantitative easing policies at ultra-low interest rates, the BoE is now refocusing its policies to focus on controlling inflation. He added.

In the years following the financial crisis, Pill said, “Directively, monetary policy was boring because it was pretty clear what you had to do,” and the only problem was how much stimulus. Was it to give?

This has changed, he added. “We have entered another stage because there are risks on both sides. [from inflationary pressures being too high or too low]At some point, the direction of monetary policy is not very clear, and I think it leads to more controversy and the possibility of disagreement. [MPC].. But it’s a sign of success, as monetary policy has emerged from a boring regime. ”

Regarding his motive as BoE Chief Economist who worked early in his career at the Central Bank before working at the European Central Bank, Goldman Sachs and Harvard University, he wants to prevent British families from suffering from high inflation. Said.

While dismissing the comparison with inflation in the 1970s, he was clear about his central motivation for BoE’s work.

“I saw this institution from the outside and was always pretty sure it was in a price-stabilizing business,” said Pill. “I’ve come in, and you’re surprised at some things, as is the nature of entering the institution, but others confirm what you expected. One of the things that has been fully confirmed is [the BoE] Is an institution involved in the price stabilization business. ”

With the first ECB Chief Economist Otmar Issing as the mentor, the Germans gently said that they should be called “Professor Issing”, so many would consider the pill to be a European inflation hawk that landed in the BoE.

Pill argues that Issing’s reputation as a hawk had to deal with the demand shock of German reunification in the 1990s and the supply problems that made the central bank’s life difficult, as well as today’s problems. Did.

“If he could bring a tenth of what he contributed to Deutsche Bundesbank and European monetary policy to his tenure here at a very difficult time, I would leave this building, perhaps. Not all people in this building are popular. Everyone else would be pretty proud of it, “said Pill.

He added that one of Issing’s major strengths is the introduction of a formal ECB system that allows staff to disagree with the general view.

This helps central banks fight groupthink with a more diverse staff. Pill said he admitted that he wasn’t a BoE diversity employer, but added, “I’m that.”

“I think it brings diversity to other aspects,” he said. “I don’t know if there are many other MPC members who want to be identified as Otmar Issing Acolytes, but I’m very proud to be identified as such.”

One of the policies that Pill wants to throw away at the BoE is forward guidance on interest rates, which is loved by former governor Mark Carney, who promised not to tighten the policy until certain conditions were met.

Mr. Pill said such guidance always started “quite well” in good faith, but then “always confused.”

Rejoicing that the BoE has abolished the latest guidance, Pill believes that the economy has so far survived the pandemic, with fiscal and monetary policy helping households and businesses almost on the other side of the crisis. increase.

While acknowledging the risks of the resurrection of the coronavirus, he has little reason to change BoE’s view that the long-term economic impact of a pandemic is just over 1% of GDP, a much shallower wound than Britain. Stated. Fiscal inspectors are likely to forecast next week on Prime Minister Rishi Sunak’s budget.

He added that new evidence of the impact of terminating the temporary dismissal system for government employees was positive. “I don’t expect the unemployment rate to rise significantly,” he said.

But in the “very tight labor market” he wasn’t currently looking at Wages go up It threatened to cause a second round of inflation concerns.

Pill said he was “paid to worry about inflation.” This will allow him to work throughout his career in the rare world of central banks, financial institutions and elite colleges, but will continue to be in line with the interests of homes and businesses.

“Working at Goldman Sachs was positive for me,” he added. “Working at the ECB was positive. Working with Otmar Issing was positive. Working at BoE … It was very positive. Teaching a lot of very smart people. [in Harvard] It was also very positive. So I am a product of my experience. I cannot deny my experience. See if I’m doing a good job or a bad job. ”

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