Too early to declare UK inflation threat defeated, says BoE chief economist

The Bank of England’s chief economist said it was too early to say the UK’s inflationary threat had been overcome and that UK conditions for price increases remained problematic.

In a hawkish speech to a financial audience in New York on Monday, Huw Pill sent the message that the BoE is not done raising interest rates as the UK is simultaneously facing multiple challenges that would reinforce each other to stem the risk of inflation increase.

Pill said the UK is almost unique in that it is faced with a normalization of interest rates from very low levels, the need to tackle strong corporate pricing power, tight labor markets and an energy price crisis.

“There is more room for energy price hikes to trigger the notorious second-round effects in price, wage and cost dynamics. . . is greater when the corporate sector enjoys pricing power and the labor market is tight,” he said.

Repeating the BoE’s Monetary Policy Committee’s statement from its December meeting that further rate hikes “may be needed for a sustained return in inflation [the 2 per cent] Target,” Pill added, adding that his future vote will be influenced by a number of circumstances that suggest inflation is likely to remain persistently high.

“The particular context prevailing in the UK – higher natural gas prices in a tight labor market, adverse labor supply developments and shortages in the goods market – creates the potential for more persistent inflation,” he said. Too early to declare UK inflation threat defeated, says BoE chief economist

Adam Bradshaw

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