Bank of England policymakers backed up concerns that Britain’s rapid economic recovery from the pandemic could lead to a damaging wave of inflation.
The expected price acceleration this year will likely be temporary, Governor Andrew Bailey told lawmakers on Monday. Jon Cunliffe, a vice-president, said inflation will later return to the central bank’s 2% target when growth slows.
While most economists agree, financial markets are betting that the central bank will hike rates as early as next year, which means investors expect the rebound to gain enough momentum to force the hand of the BOE.
Monday’s comments come after that Data showed that UK inflation more than doubled to 1.5% in April.
The market-based inflation expectations are now at their highest level since 2008. The so-called 10-year expectations break even The interest rate – a measure of the difference between the returns on traditional bonds and those related to retail price inflation – has risen more than 50 basis points this year.
Andy Haldane, the outgoing chief economist at the BOE, has also sounded the alarm about inflation risks. He only voted against leaving the central bank’s incentive unchanged and opted to reduce the bond purchase program.
Haldane told lawmakers that inflation poses a greater risk to the economy than scars on the job market after the recession.
“I felt that the inflationary risk balance is up and therefore it is justified to reduce that level of housing by those Â£ 50 billion,” said Haldane, adding that companies under cost pressures have a better than straight chance “take advantage of the strong economic recovery to raise prices.
Another policy maker, Michael Saunders, sees a risk that inflation will “fall below target over time” due to the ongoing scars from the pandemic.
Bailey said policymakers need to watch inflation “very closely” even though there is no evidence that either inflation expectations or price increases are setting in motion. He attributed recent gains to commodity prices and shortages in items such as computer chips.
“We to hope Some of these factors will correct themselves, âhe said.
((Updates with Haldane’s comment from the sixth paragraph.)