By Laurie Laird
LONDON (MaceNews) — A key Bank of England rate setter publicly queried the Monetary Policy Committee’s forecast of quiescent price pressures in 2021, warning against “central bank complacency” after a long period of below-target inflation.
“My judgement is that we might see a sharper and more sustained rise in UK inflation than expected, potentially overshooting its target for a more sustained period,” said BoE Chief Economist Andy Haldane on Friday, in a lecture published on the Bank’s website.
UK consumer price inflation rose to an annual rate of 0.7% in January, but remained well below the Bank’s 2.0% target for the 18th-straight month. The Monetary Policy Committee expects CPI to rise “quite sharply toward the 2% target in the spring,” according to minutes of the February meeting.
Haldane’s comments on Friday suggest some disagreement with the Bank’s central forecast of inflation settling at its target rate. The chief economist noted that the MPC rate setters see their forecast risks as “large but balanced.”
Unlike during the financial crisis, households and corporations could emerge from the Covid crisis with “stronger, not weaker balance sheets,” he said. Excess savings currently total approximately £250 billion, which could unleash a wave of spending and investment once restrictions are lifted. Throughout the crisis, Haldane has sounded a more optimistic note than many of his MPC colleagues.
Haldane held back from issuing any policy prescriptions, but did warn that “the costs of getting the judgements wrong could be significant.” But he believes that UK inflationary risks are less acute than in the U.S., where the economy has received a proportionately-higher dose of fiscal stimulus.
Earlier this week, Bank of England Governor Andrew Bailey downplayed the threat of a surge in U.S. prices, noting that the Federal Reserve has policy “under control.”