Rising inflation is likely to be temporary, a Bank of England rate setter said in remarks that reined in expectations of imminent policy tightening.
In a speech, Ben Broadbent said he thought rising prices in shops were unlikely to persist over the timeframe the Bank uses to decide on interest rates and other measures.
“I’m not convinced that the current inflation in retail goods prices should in and of itself mean higher inflation 18 to 24 months ahead, the horizon more relevant for monetary policy,” Broadbent said.
He said price increases were likely to stay above the BoE’s 2% target this year but that the effect was likely to temporary as the economy rebounds from the worst of the pandemic. The correct policy response “could well be nothing”, he said.
Broadbent’s comments suggested the monetary policy committee was likely to stick to its schedule for ending bond purchases and hold off on any rate rise for longer than markets were expecting. Analysts had pencilled in a tougher stance from the MPC after two members, including Michael Saunders, said action might be needed soon to curb inflation.
BoE Governor Andrew Bailey has said the BoE would not be rushed into increasing rated with the economy still fragile and little evidence that rising prices would persist. But some economists, including former Governor Mervyn King, have warned against complacency over inflation, which stood at 2.5% in May.
The MPC’s next meeting is in in August. A CBI survey on Thursday showed materials costs feeding into higher factory gate prices but Broadbent said such increases were likely to be temporary.
“While risks of an early end to QE [bond purchases] have clearly risen in recent weeks, Broadbent’s more neutral stance suggests a split vote at the August meeting, and marginally higher chance that the MPC maintains the status quo,” TD Securities said.